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Full text of "Illinois agricultural economics"

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DEPARTMENT OF AGRICULTURAL ECONOMICS 
UNIVERSITY OF ILLINOIS 
AGRICULTURAL EXPERIMENT STATION 



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ILLINOI 

AGRICULTURAL 



ECONOMIC 



ARTICLES IN THIS ISSUE: 



DECEMBER, 1964 
VOLUME 4, NUMBER 3 

(SPECIAL ISSUE) 



The Role of Agriculture in Economic Growth 

and Development, Arthur 8. Mac/c/e Page 1 

Policies for Agricultural Development, 

Wade F. Gregory Page 1 

Some Demographic Features of Underdeveloped 

Countries, 8. D. Misra Page 20 

Labor Force Composition and Economic Structure 

of the Agricultural Sector, Folke Dovring Page 29 

Farm Management Research and Agricultural 

Development in India, George Montgomery Page 38 

Farm Management Research and Agricultural De- 
velopment in Latin America, D. Woods Thomas. . .Page 46 

International Trade Models, T. Takayama and 

G. G. Judge Page 53 

Trade Liberalization: Issues and Implications, 

Stephen C. Schmidt Page 63 

Estimating Export Potentials for U.S. 

Agricultural Products, 1. A. Hieronymus Page 78 

Influence of Rural Institutions on Economic 

Development, David E. Lindstrom Page 85 

Land Ownership and Tenure Reforms, 

Folke Dovring Page 94 



In the period since World War II, colleges of agriculture have 
become increasingly involved in international activities — 
training students from foreign countries, supplying staff mem- 
bers to serve in a wide variety of foreign assignments, con- 
tracting with foreign governments to aid in development of 
educational institutions, and handling a sharply increasing 
number of foreign visitors. 

Many of these activities are directed toward speeding the 
agricultural development of low-income countries in which agri- 
culture characteristically plays an important role in total eco- 
nomic development. 

We know that in order to modernize the economies of 
these countries, agriculture must supply the food for the ex- 
panding urban population, frequently help earn foreign ex- 
change, and provide the capital for promoting economic 
growth. However, much remains to be learned concerning the 
specific nature of this process in particular countries at various 
stages of development. Increased knowledge and understand- 
ing in this area is one of the urgent needs of our times. It is 
a critical element in effective training programs for the in- 
creasing number of agricultural economics graduate students, 
both foreign and domestic, who intend to have professional 
careers related to the agricultural development of foreign 
countries. A research base can offer a substantial contribution 
to the better understanding of agricultural development. 

To help give direction to a research program dealing with 
some of the many aspects of agriculture's role in the overall 
development process, a conference was held April 13-15, 
1964, at the University of Illinois College of Agriculture. The 
purpose of the conference was to explore areas in which re- 
search by agricultural economists promises to be most effective 
and to suggest hypotheses that might serve to guide research. 
Substantive results of previous research were discussed only 
to the extent necessary to provide a problem setting. 

This special issue of Illinois Agricultural Economics includes 
the papers given at this conference. They deal with five gen- 
eral problem areas: 

1. The agricultural sector in economic development and 
policy. 

2. Characteristics of population and labor force. 

3. Farm management research in low-income countries. 

4. International trade and economic development. 

5. The role of institutional reform. 

In addition to the formal papers, the following persons 
contributed to the conference (discussion of the papers): C. B. 
Baker, George Brinegar, W. D. Buddemeier, Joseph Casa- 
grande, Folke Dovring, Marianne Ferber, C. L. Folse, Marvin 
Frankel, Robert Gillespie, Fred Gottheil, Joseph Gusfield, H. W. 
Hannah, Robert Kokernot, Solomon Levine, Robert Mitchell, 
Russell Moran, Walter Phillips, Demitri Shimkin, Earl R. Swan- 
son, and Edward Tyner. 






ILLINOIS AGRICULTURAL ECONOMICS 



The Role of Agriculture 
in Economic Growth and Development 



ARTHUR B. 
Development and Trade Analysis Divisi 

It will be my purpose in 

this paper to draw a distinction between 
the concepts of economic growth and 
economic development, to define the role 
of agriculture in economic growth and 
development, and to examine some of the 
measures of its contributions to economic 
growth in three groups of countries at 
different stages of development. 

The limitations of current data and the 
need for particular types of data are dis- 
cussed in terms of possible research on 
the role of agriculture in economic 
growth and development. 

The concepts of economic growth and 
economic development are often used in- 
terchangeably, and the distinction be- 
tween the two is very vague. However, 
in this paper I will refer to economic de- 
velopment as the process by which an 
economy passes from a less developed 
stage to a more advanced one, whereas 
by economic growth I will mean a sus- 
tained increase in national output or in- 
come per capita within a given stage of 
development. Such a distinction permits 
one to incorporate the various measures 
of agriculture's contribution as proposed 
by Kuznets 1 and Johnston and Mellor 2 

1 Simon Kuznets, Economic Growth and the 
Contribution of Agriculture : Notes on Meas- 
urement. Int. Jour. Agrarian Affairs 3(2) : 
56-75. April, 1961. 

2 Bruce F. Johnston and John W. Mellor, 
The Role of Agriculture in Economic Develop- 
ment. Amer. Econ. Rev. 4(4) :566-593. Sept., 
1961. 



MACKIE 

on, Economic Research Service, USDA 

into the stages of growth concept, as pro- 
posed by Rostow. 3 

In considering the contributions of ag- 
riculture to economic development, it 
may be useful to first consider the con- 
tributions to the growth process, as eco- 
nomic growth involves a shorter period 
of time. For it is by sustained economic 
growth over a period of time that an 
economy achieves economic development, 
as measured by changes in the structure 
of the economy. 

This distinction appears useful from 
both the standpoint of analysis and the 
formulation of policies and programs de- 
signed to stimulate growth and achieve 
development. Specific programs are 
needed to achieve and maintain growth. 
Likewise, specific programs and policies 
or strategies are needed to direct eco- 
nomic growth along certain desired de- 
velopment paths once it has been initiated. 
The first priority, of course, is to initiate 
growth. Then policies can be directed to- 
ward removal of bottlenecks that impede 
continued growth. 

Finally, a distinction between economic 
growth and development appears useful 
from the standpoint of classifying coun- 
tries that are growing within a given 
stage of development and those that are 
in the transitional phase, passing from 
one stage of development to a higher one. 

3 W. W. Rostow, The Stages of Economic 
Growth. Cambridge University Press. 1960. 



ILLINOIS AGRICULTURAL ECONOMICS, DECEMBER, 1964 



Role of Agriculture 

Agriculture's role in economic growth 
is a vital one, and its contribution has 
more than one dimension. Its main con- 
tribution, of course, is to supply the basic 
food and fiber needs of a country's grow- 
ing population and economy. However, 
agriculture's total contributions to eco- 
nomic growth go much beyond this fun- 
damental role. With economic growth, 
the complexity of the contribution in- 
creases. In changing from a traditional 
society to an advanced economy, the role 
of agriculture in the total economy usu- 
ally declines. 

These contributions are made to the 
growth process by ( 1 ) increasing produc- 
tion, above subsistence levels, of food and 
fiber at a minimum cost, thereby facilitat- 
ing growth of the nonfarm economy; 
(2) stimulating growth of industries, and 
thus employment in industries processing 
agricultural products and those furnish- 
ing agricultural inputs; (3) providing 
management and labor resources to other 
segments of the economy through in- 
creased application of technology and in- 
novations in production, thereby increas- 
ing production efficiency and releasing 
labor resources; (4) providing a source 
of capital for industrial growth and taxes 
to finance government services during 
transition; and (5) providing increased 
income opportunities for a segment of the 
population, thereby increasing produc- 
tion, specialization, and per capita in- 
comes. 

Kuznets has summarized these contri- 
butions into more general and perhaps 
more measurable aspects. According to 
Kuznets, agriculture makes a direct con- 
tribution to growth of national product 
by increasing the total product. Agricul- 
ture also makes a market contribution by 
trading with other sectors. And if it 
transfers capital and labor resources, it 
makes a factor contribution. 



Johnston and Mellor list five contribu- 
tions that agriculture makes to economic 
growth as a result of increased produc- 
tion. These are (1) increased food sup- 
plies, (2) increased agricultural exports, 

(3) increased transfer of labor resources, 

(4) increased capital formation, and 

(5) increased purchasing power as a re- 
sult of increased levels of income. These 
contributions are essentially the same as 
the Kuznets classification. For example, 
contributions (1) and (2) above can be 
included in the product contribution, con- 
tributions (3) and (4) can be included 
in the factor contribution, and contribu- 
tion (5) can be included in the market 
contribution. I prefer the Kuznets classi- 
fication because it is more inclusive and 
perhaps more measurable in the aggre- 
gate. 

A more complex, but vital contribution 
of agriculture to economic growth is made 
indirectly by agriculture to the total econ- 
omy. The indirect contribution is less 
measurable but may influence the magni- 
tude of the more direct and measurable 
aspects of agriculture's contributions. 
However, no attempt will be made to deal 
with these contributions in this paper ex- 
cept to emphasize their relative impor- 
tance in the total combinations of factors 
affecting the growth process. 

According to Kuznets, there are three 
interrelated aspects of economic growth: 
an increase in total and per capita prod- 
uct, an increase in domestic and interna- 
tional flow of goods and services, and 
rapid shifts in the structure of an econ- 
omy with prolonged and sustained eco- 
nomic growth. 

These three aspects are clearly interre- 
lated. Kuznets stated: "The rise in per 
capita product, essential to the aggregate 
view of economic growth, in and of itself 
means a shift in consumption and savings 
patterns and thus contributes to the shift 
in the industrial and other structures of 



ROLE OF AGRICULTURE IN ECONOMIC GROWTH 



the economy. . . . Given this interrela- 
tion, it is often impossible to specify the 
contribution of a single sector, say agri- 
culture, to each aspect of economic 
growth. . . . For if a sector contributes 
to structural shifts and greater interna- 
tional division of labor, if a sector con- 
tributes directly to foreign trade, it indi- 
rectly contributes to growth of product 
per capita and to structural shifts within 
a country." Hence, the view of the 
changing domestic structure of a nation's 
economy in its process of growth can be 
supplemented by a view of the sequential 
pattern of the economic flows between it 
and the rest of the world. 

In contrast to agriculture's "relatively 
simple" contributions to economic 
growth, its contributions to economic de- 
velopment are more complex, as they 
involve an accumulation of all the growth 
contributions over time. 

These contributions to development can 
be more accurately referred to as aspects 
of development, since they involve 
changes in the social and economic struc- 
ture of the economy. These aspects are 
also more descriptive than operational, 
since they tend to describe what happens 
after growth has occurred. For example, 
changes in income and demand lead to 
changes in consumption, production, and 
use of the nation's resources. And, since 
economic growth involves increases in 
production, employment, trade, incomes, 
etc., agriculture's contributions to eco- 
nomic development must be measured in 
terms of its ability to facilitate structural 
changes in the total economy. 

Transitional growth through the vari- 
ous stages of development is not neces- 
sarily smooth or automatic. Therefore, a 
definition of the total role of agriculture 
in the economic development of a coun- 
try must necessarily consider the change 
in nature of the social, political, and eco- 
nomic environment and its contributions 



in relation to the economic opportunities 
created by the growth process. Jiut this 
is a complex consideration at best when 
one attempts to measure these contribu- 
tions. Consequently, agriculture's contri- 
butions to development can probably be 
better approached through the relatively 
more simple attributes or contributions to 
economic growth. 

Classification of Countries by Growth 
and Development Characteristics 

The world may be divided, although 
by no means neatly, into three general 
groupings — developed, developing, and 
underdeveloped countries. These group- 
ings can be further subdivided into 
rapid-, moderate-, and slow-growth coun- 
tries. 

The placement of a given country into 
a particular category will depend, of 
course, upon what classification criteria 
are chosen. For example, growth rates 
in population and income alone do not 
offer clear-cut classifications because of 
high growth rates in both the developed 
and developing countries. Likewise, 
growth rates of agricultural production 
or level of income per capita alone are 
unsatisfactory. The proportion of the 
labor force in agriculture and the share 
of total national product originating in 
the agricultural sector provide better, but 
still incomplete, classification. These two 
development characteristics do, however, 
provide a useful first approximation to 
the relative stages of development. And 
if these two criteria are combined with a 
general level of per capita income, the 
general classification of countries can be 
improved and perhaps form an acceptable 
basis for some analysis. 

A second method of classifying coun- 
tries was tried. Generally, I accepted the 
three general categories of countries 
based upon developmental characteristics 
and endeavored to compare growth rates 



ILLINOIS AGRICULTURAL ECONOMICS, DECEMBER, 1964 



of population, income, and agricultural 
products. 

I chose these comparisons because of 
the effect of each upon the total growth 
of a country. For example, a high pop- 
ulation growth rate — one that exceeded 
both income and agricultural production 
in a country — would necessarily make 
economic progress very difficult. Such a 
country would fall further behind if these 
conditions persisted over a long period of 
time. On the other hand, if income and 
agricultural production exceeded popula- 
tion growth, then the conditions for eco- 
nomic growth would exist, and if these 
conditions prevailed for several years, in- 
come, consumption, trade, employment, 
and production would all increase, 
thereby causing structural changes to 
emerge. And with changes in the struc- 
ture would come higher levels of devel- 
opment, as measured by the share of the 
labor force in agriculture and the share 
of the GNP originating in agriculture, 
among other things. 

The results of classifying countries ac- 
cording to growth rates in population, 
income, and agricultural production are 
summarized in Table 1, and Figure 1. 

Contributions of Agriculture 

A general view of the role of agricul- 
ture in economic growth and its contri- 
butions to the growth process can be seen 



in the general grouping of 78 countries 
as shown in Table 2. These data are 
summarized from a recent United Na- 
tions publication, The Growth of World 
Industry, 1938-1961. 

Data for total income and agricultural 
production are estimates of gross domes- 
tic product at factor cost in constant 
prices and domestic currencies. Data for 
some countries were estimated from data 
on GNP, converted to U.S. dollars, and 
expressed in 1954 prices. In addition to 
the noncomparability of data, there may 
be some distortion of growth rates by 
this procedure. However, there doesn't 
appear to be a sufficient basis for con- 
cluding that the relative magnitudes or 
relationships between income, population, 
and agricultural production are drasti- 
cally changed by this procedure. There- 
fore, I have included them in the present 
analysis. 

The data in Table 2 on income, popu- 
lation, and agricultural products show 
that (1) the growth rates of income, pop- 
ulation, agricultural product, and per 
capita income are highest in the rapid- 
growth countries, whether they are de- 
veloping or developed; (2) capital for- 
mation, total and agricultural, are also 
highest in these rapid-growth countries; 
(3) capital formation in agriculture is 
negative in the underdeveloped countries; 
and (4) capital formation is closely as- 



Table 1. — Comparison of Population Growth Rates With Growth in Total and Agricultural 
Gross Domestic Product, Selected Countries, 1950-60 



Number of countries 



Type of 
country 



Population vs. agricultural 
growth 



Agr. 

GDP data 

P>A P<A 



Per capita agr. 

GDP data 
P>A P<A 



Population vs. total income 
growth 



Total 

GDP data 

P>I P<I 



Per capita 

GDP data 

P>I P<I 



Developed 5 11 

Developing 18 31 

Underdeveloped 10 

Total 33 42 



5 

7 

29 

41 



11 

23 



34 






10 

10 



18 

50 



68 



3 



29 

32 



14 

32 



46 



ROLE OF AGRICULTURE IN ECONOMIC GROWTH 



sociated with growth in total and agri- 
cultural product. 

It appears from these data that agri- 
culture makes its greatest contribution 
when a country is growing rapidly. 
Whether rapid growth in total income is 
the result of rapid growth in agriculture 
is not entirely clear. But the high pro- 
portion of total income derived from 
agriculture and the high proportion of 
total labor force employed in agriculture 
strongly suggest that a large part of the 
total growth is generated by the agricul- 
tural sector. 

One measure of the importance of agri- 
culture to total economic growth is its 
contribution to total national product. 
The data in Table 2 and Figure 2 on agri- 
cultural gross domestic product (GDP) 
suggest that the rapid growth rate of 
agricultural product also rapidly increases 



the rate of real returns to the factors of 
production and thus induces the owners 
of these resources to increase their in- 
vestment in fixed capital. Increased fixed 
capital formation in agriculture in turn 
adds to the productive capacity and to the 
basis for continued growth in real prod- 
uct per capita over time. This process of 
rising output, investment, and output 
leads to sustained growth and contributes 
to structural changes in the total econ- 
omy. 

The relationship between the various 
growth characteristics and development 
is illustrated by the relative magnitudes 
of GDP, population, and agricultural 
GDP in Figure 2. This graph is based 
on the data in Table 2 and is intended 
only to portray the gross magnitude of 
growth characteristics of countries at dif- 
ferent stages of development. The points 



POPULATION GROWTH RATE 
(PERCENT) 

5.0 -J 

4.5- 

4.0- 



SYRIA* 

GUATEMALA* 



3.5 



PANAMA* 

3.0 H 



COSTA RICA* 
NIGERIA* 

• SUDAN 



CANADA* 

UGANDA*- 

2.5 



•CAMBODIA 



U.S.* 



5 - 



CZECHOSLOVAKIA* 



SWEDEN* 




P< A 



VENEZUELA* 
• THAILAND 
PHILIPPINES 



ISRAEL • 
TAIWAN • 



*MALAYA 

•BR. GUI AN A . rnAunu 
CHILE* * LEBANON, 

•RHODESIA-NYASALAND 
•MOROCCO I 
•CEYLON •HONDURAS 

f°)L p LltUNION OF SO. AFRICA 
O 






TURKEY 

• TRINIDAD 



PARAGUAY K 



m KENYA,CONGi 

URITIUsT 4 ' '•P^ISTAN 
TANGANYIKA' K0REA * •' ND ' A 



• COLOMBIA 

• INDONESIA 



CYPRUS* 



•ARGENTINA 

JAMAICA* 
NETHERLANDS* 



\TUNISIA 
JAPAN- 



•U.S.S.R. 



I.0- 

NORWAY* 

HUNGARY, 
PUERTO 
RICO 5~ 



BARBADOSm •\ A ,„„.t?M RA 
FINLAND* m tr.6FRMANY 

FRANCE* 



BURMA 

GREECE 



• POLAND 

•YUGOSLAVIA 
• SPAIN 



•DENMARK 
*BELGHM* rrALY 
XEMBC 



PORTUGAL* 'LUXEMBOURG 
I •MALTA 

/ •AUSTRIA 

L i •!***$£. 



^E. GERMANY 



I 



-5 -4 -3 -2 -I I 2 3 4 5 6 7 8 9 10 

ANNUAL GROWTH IN NET DOMESTIC AGRICULTURAL PRODUCT AT FACTOR COST (PERCENT) 

Fig. 1. — Comparison of annual rates of growth in population (P) and agricultural produc- 
tion (A) (70 countries, 1950-60). 



6 ILLINOIS AGRICULTURAL ECONOMICS, DECEMBER, 1964 

Table 2. — Growth and Other Characteristics of Selected Countries, 1950-60 (Ranges of Percents) 

Annual growth rate — percent compounded Ratio of Ratio of 

£SS£ GD P Fixed capita, ^labor ag. GDP 

countries GDP Pop> per Agr^ formation kbor GDp 

capita Total Agr 1950-6O 1950-60 

(factor cost) (factor cost) (percent) 

Developed countries 

High income and moderate 

growth* 3-4 2-3 1-2 0-1 3-5 0-1 12 5-9 

Moderate income and 

growth^ 2-4 1 1-3 1-2 3-6 2-8 5-26 5-28 

Moderate income and 

high growth 4-10 1-2 3-8 2-5 4-9 4-8 15-67 2-28 

Developing countries 

Rapid growth d 4-10 1-4 3-9 1-6 1-11 1-9 25-88 7-51 

Moderate growth 6 2-4 1-3 0-3 1-4 0-7 0-4 30-71 8-68 

Underdeveloped countries 
Slow or no growth f 0-2 2-3.5 -(1-2) - (1-5) 25-71 16-65 

a Includes United States and Canada. 

b Includes Sweden, Switzerland, United Kingdom, Denmark, Norway, Belgium-Luxembourg, Ireland. 

c Includes France, West Germany, Finland, Netherlands, Austria, Czechoslovakia, U.S.S.R., Hungary, Italy, 
Poland, Yugoslavia. 

d Includes Japan, Mexico, Greece, Republic of South Africa, Jamaica, Venezuela, Israel, Puerto Rico, Costa 
Rica, Spain, Barbados, Portugal, Colombia, Burma, Peru, Brazil, Ghana, Trinidad, Algeria, Bulgaria, Turkey, 
Iraq, Rhodesia, Nyasaland, Guatamala, Ecuador, Philippines, Egypt, Ceylon, Taiwan, Paraguay, Korea, Thailand, 
Congo. 

e Includes Chile, Malta, Nigeria, Panama, Cyprus, Mauritius, British Guiana, Honduras, Tunisia, Kenya, 
Sudan, Pakistan, India, Indonesia, Burma, Tanganyika. 

f Includes Malaya, Syria, Cambodia, Uganda, Morocco, Argentina, Lebanon. 

Source of data: The Growth of World Industry, 1938-1961 U.N., New York. 1963. 



Fig. 2. — Relation of growth characteristics of countries to their development (1950-60). 

9 



o 
rr 



UJ 

< 



8 - 



7 - 



6 - 



5 - 



4 - 



3 - 



x 
i- 2 

o 

CC 
O I 




Developing 



-*— *- 



Developed 




,©— o— o — ®. 



-2 



200 400 600 800 1000 1200 

PER CAPITA INCOME IN U.S. DOLLARS (APPROXIMATELY 1955) 



1400 



-3 L® 



ROLE OF AGRICULTURE IN ECONOMIC GROWTH 



indicated are midpoints in the range of 
growth rates for the countries included 
in the indicated growth categories. 

So far I have been able only to suggest 
something about the nature and magni- 
tude of the product contribution of agri- 
culture, and to indicate that capital for- 
mation is highly associated with growth 
in production. Real capital formation in 
agriculture does not indicate the contri- 
bution of agriculture to the nonfarm sec- 
tor by capital transfers. Rising returns 
to the factors of production do, however, 
indicate the possibility for increased 
savings, but knowledge of the distribu- 
tion of increased returns to the factors is 
necessary to determine the amount of 
capital transfer. 

A measure of the extent of transfer of 
labor resources out of agriculture can be 
determined by the rate of migration 
within a given time period. I chose not 
to present any data of this nature, but 



rather to deal with the change in the pro- 
portion of the labor force engaged in 
agriculture in various countries at dif- 
ferent levels of development in 1959-60. 

A cross-sectional analysis, as shown in 
Figure 3, is suggestive of the relationship 
of changes in employment associated 
with growth in per capita income. The 
wide scatter of the data and the relatively 
low correlation (r 2 = .6) suggests that the 
reduction in the proportion of agricul- 
tural employment with economic growth 
is not uniform and differs greatly from 
country to country. Part of the wide var- 
iation among countries is, no doubt, as- 
sociated with geographic size of the coun- 
try as well as the nature and extent of 
its natural resources. Figure 4 shows the 
relationship between per capita income 
and agriculture's share of GNP. 

The magnitude of structural changes 
that might occur in a rapidly growing 
economy can be illustrated from the his- 



Fig. 3. — Proportion of labor force engaged in agriculture: declines with economic growth 
(69 countries around 1959-60). 



100 
90 
80 
70 
60 h 
50 

40 
30 

20 



UJ 

o 
K 

u 

a- 10 




Log Y = 2.9935 * (-.5567) Log X 
r 2 =.645 



_L 



_L 



_L 



-L 



I 



10 



20 



30 40 50 100 200 300 400 500 

NATIONAL INCOME PER CAPITA (US DOLLARS) 1959-60 



1000 



2000 



ILLINOIS AGRICULTURAL ECONOMICS, DECEMBER, 1964 



torical case of American agriculture. In 
Thomas Jefferson's time, 90 percent of 
the population was engaged in agricul- 
ture, while by 1960 this proportion had 
shrunk to less than 10 percent. In 1870, 
almost 40 percent of the nation's GNP 
was attributable to agriculture; by 1960, 
agriculture's share of GNP had declined 
to about 5 percent. In 1865, agricultural 
products made up about 83 percent of 
total U.S. exports; this percentage had 
declined to about 22 percent by 1958. 
However, during this time real gross 
farm product per farm worker in the 
United States increased 5.4 times, or 440 
percent; it increased 2.7 times, or 170 
percent, from 1936 to 1958. 

Thus agriculture's role in economic de- 
velopment is a very important one. In 
the slow-growing, low-income countries, 
the lack of a vigorous agricultural sector 
appears to be a drag on total economic 
development. In the rapid-growing and 
developing countries, its contribution be- 



comes dominant and perhaps the prime 
force in total economic growth by pro- 
viding the necessary forward momentum 
needed to keep the growth process going. 

Through work specialization, division 
of labor, and improved use of resources, 
agricultural production is increased, 
thereby enabling agriculture to (1) sup- 
port an increase in population, (2) stim- 
ulate the growth of an exchange econ- 
omy, (3) provide a source of captial for 
industrial development and governmental 
functions in the transition period, (4) 
earn the much-needed foreign exchange 
for capital development, (5) make avail- 
able the labor supply necessary for the 
growth and development of infant indus- 
tries and trade, and (6) provide the 
major stimulus for growth and develop- 
ment of industrial sectors so essential to 
the "takeoff." 

Rising real incomes in agriculture re- 
sulting from increased productivity not 
only make the above contributions pos- 



100 
90 
80 
70 
60 
50 

40 
30 

20 



a. 10 



5 - 



10 




Log Y -- 2.8289 * (-.6057) Log X 
r 2 -- .678 



J L 



30 40 50 60 ICO 200 300 400 500 

NATIONAL INCOME PER CAPITA (U.S. DOLLARS) 1959 - 60 



Fig. 4. — Agriculture's share of gross national product: declines with economic growth (68 
countries around 1959-60). 



ROLE OF AGRICULTURE IN ECONOMIC GROWTH 



sible, they also provide the incentives 
and conditions for human resource de- 
velopment so essential for continued 
progress in scientific, political, and social 
development. In the words of Professor 
Rostow, "The rate of increase in output 
in agriculture may set the limits within 
which the transition to modernization 
(economic growth) proceeds." 

Agriculture further contributes to eco- 
nomic growth during the transitional 
period by ( 1 ) stimulating the growth and 
development of processing industries us- 
ing farm products and industries produc- 
ing farm inputs, thereby increasing em- 
ployment in the nonfarm economy, (2) 
supporting price stability through in- 
creased and more efficient production, 
and (3) supporting nonfarm growth 
through expansion of demand for non- 
farm products. 

Although economic growth may receive 
its initial impetus within the agricultural 
sector, its subsequent contributions de- 
pend upon concomitant developments in 
the nonfarm sector, especially industrial. 
The interrelated effects of agricultural 
and industrial development provide the 
economic opportunities for further devel- 
opment within each sector, which growth 
of one sector alone cannot provide. 

The passing of a nation's economy into 
a period of rapid economic and industrial 
growth ushers in a period of profound 
structural changes in the economy as 
represented by changes in employment, 
production, income distribution, and con- 
sumption. 

The role of agriculture in the economy 
is also changed from the dominant eco- 
nomic sector to a declining sector in 
terms of its relative share of the nation's 
total employment, income, and produc- 
tion. Expansion in total national product 
and income in a maturing economy de- 
pends more and more on nonfarm growth 
than on agriculture. The role of agricul- 



ture becomes increasingly one of adjust- 
ing to the changing economic forces cre- 
ated by nonfarm growth and by increased 
application of technology in the produc- 
tion of a larger output with fewer re- 
sources, especially labor. 

Successful agricultural adjustments to 
nonfarm growth may be broadly classi- 
fied as making a dual contribution to 
total economic growth. That is, agricul- 
ture provides manpower to the growing 
nonfarm sectors while its shrinking 
share of the nation's manpower provides 
an adequate supply of food and fiber 
for the urban population at rather con- 
stant prices. This adjustment also in- 
volves increased commercialization of 
farming and increased interdependency. 
Agriculture's role in helping to promote 
and sustain economic growth depends on 
its ability to develop flexibility and re- 
sponse to both adverse and favorable 
economic events. 

Thus agriculture, in further pursuit of 
increased levels of farm incomes through 
expansion of production, becomes in- 
creasingly dependent upon growth and 
structural changes in the total economy. 
The extent to which productive and con- 
structive outlets for farm products can 
be developed will largely determine the 
future role of agriculture in advanced 
societies. Opportunities for increasing 
the use of agriculture's productive ca- 
pacity appear most promising in the area 
of utilizing farm products to stimulate 
world economic development. Such uses 
may stimulate world trade and, even- 
tually, a larger demand for industrial and 
farm products. 

The role of agriculture in continued 
economic growth of advanced economies 
may well rest upon its direct and in- 
direct contributions to international trade. 
In this or any other area of contribution, 
agriculture will perform its greatest func- 
tion through improved production with 



10 



ILLINOIS AGRICULTURAL ECONOMICS, DECEMBER, 1964 



fewer resources. The application of im- 
proved production methods will increase 
the spread effects of agriculture on the 
total economy, which in turn will create 
additional opportunities for agriculture 
through expansion and growth of the 
total economy. 

Limitations of Data 
and Aggregate Analysis 

It is one thing to list the contributions 
of agriculture and another to measure or 
quantify these contributions. At present, 
data on income and agricultural produc- 
tion are very sketchy for the majority of 
countries. Data are available for a larger 
number of developed countries than for 
underdeveloped countries, of course, but 
even in these countries there are large 
gaps in the information on major eco- 
nomic sectors. National income accounts 
are not always uniform, but this is im- 
proving with the help of the United 
Nations and the International Monetary 
Fund. 

Aggregate data on total national in- 
come and trade are rapidly improving. 
But agricultural production and trade 
data for most countries are far from 
being sufficient to enable one to determine 



the components of agricultural produc- 
tion by sectors or major crops. It would 
be very helpful if more information were 
available for just the commercial sector 
of agriculture. It is in this sector that 
growth will occur, and it is this sector 
that will generate the agricultural sur- 
pluses for trade, as well as changes in 
production, income, consumption, and 
capital accumulation necessary for major 
contributions to economic growth. 

The data I have presented here today 
are not adequate for the task at hand, as 
they have many limitations. They are, 
however, recent data and perhaps the 
most indicative of what is going on in 
the various countries of the world. In 
spite of their limitations, I think that 
these data do reveal relevant relation- 
ships and suggest adequate hypotheses 
that need testing. 

The USDA is currently doing research 
on the factors affecting agricultural pro- 
ductivity in the underdeveloped countries 
under contract with AID. It is our hope 
that out of this research will come suf- 
ficient data to fill the many gaps and pro- 
vide additional knowledge about the role 
and contributions of agriculture to eco- 
nomic growth in developing countries. 



Policies for Agricultural Development 

WADE F. GREGORY 
Development and Trade Analysis Division, Economic Research Service, USDA 



It is encouraging to those 

of us working in the field of economic 
development to know that an institution 
like the University of Illinois is becom- 
ing actively engaged in research related 
to the problems of underdeveloped areas. 
The topic assigned to me, "Policies for 
Agricultural Development" is a broad 
one, and I shall restrict my comments to 
a few areas. 



One of the first policy issues to be 
faced in mapping out development strat- 
egy is to make explicit the role expected 
of the agricultural sector and to insure 
that the objectives are not only internally 
consistent but also reinforce rather than 
compete with the objectives for overall 
economic and social development of a 
nation as a whole. You all know the ob- 
jectives usually listed for the agricultural 



POLICIES FOR AGRICULTURAL DEVELOPMENT 



11 



sector: (1) provide abundant quantities 
of food, (2) provide foreign exchange 
through production of export crops, (3) 
provide a source of labor for industrial 
expansion and (4) provide a source of 
domestic capital for economic develop- 
ment. However, if all of these were to 
be achieved simultaneously, conflicting 
policy decisions would usually emerge. 
For example, the first objective, that of 
providing abundant quantities of food, 
can be achieved either through policies 
for promoting domestic production or 
through imports. The extent to which 
many of the underdeveloped areas 
should seek the goal of self-sufficiency, 
or even relative self-sufficiency, in food 
production is not clear. 

Obviously one of the reasons for want- 
ing an adequate supply of cheap food is 
to enable an economy to compete in the 
production of industrial goods, as well 
as to reduce political and social unrest 
on the part of the great masses of the 
population. Therefore, the objective of 
providing adequate supplies of food 
through domestic production can conflict 
with the second objective, that of pro- 
viding foreign exchange. In many cases, 
a country must choose between using its 
agricultural resources in the production 
of crops for export or in the production 
of crops for domestic consumption. It 
then becomes a matter of policy to decide 
whether emphasis should be given to im- 
port substitution or export expansion. 

The third objective, that of providing 
a source of labor for industrial expan- 
sion, has traditionally been accepted as 
one of the roles that must be played by 
the agricultural sector if overall growth 
is to take place. However, this seems a 
little strange for many of the underde- 
veloped areas of the world where great 
masses of unemployment exist, not only 
in rural areas but also, and perhaps to a 
greater extent, in urban centers. 



This traditional goal of supplying labor 
to urban centers is beginning to be 
challenged in some quarters as an appro- 
priate objective for the agricultural sec- 
tor, with the reverse goal being suggested 
as a more appropriate objective; namely, 
that of absorbing and keeping in rural 
areas the excess labor that cannot be em- 
ployed in agriculture. The reasoning is 
that great masses of unemployed people 
in heavily populated urban centers may 
actually hinder rather than induce devel- 
opment, for the heavy influx of migrants 
from rural areas may place undue strain 
on social overhead facilities as well as 
becoming potentially dangerous causes of 
revolution. 

The final traditional factor listed, that 
of providing domestic capital for eco- 
nomic development may also conflict with 
the goal of increased agricultural output 
since the agricultural sector itself needs 
capital in order to develop. 1 In fact, 
there are many proponents of the argu- 
ment that capital needs to be transferred 
from the nonfarm to the farm sector in 
order to speed up the process of agricul- 
tural development. 

Coordination of Objectives 

This is not meant to suggest that these 
various objectives must be incompatible 
with one another, but rather that the de- 
sired results will not likely be achieved 

1 This is not meant to suggest that increased 
agricultural output cannot occur without heavy 
infusions of capital. Actually the opposite view- 
point is held by the author, as spelled out in an 
article, "Algunos Aspectos del Uso del Capital 
en Relacion al Desarrollo Agricola de America 
Latina," Economica Latinoamericana 1(1). 
Sept., 1963. The argument is made that use of 
"strategic" capital inputs — fertilizer, pesticides, 
etc. — can make possible significant output in- 
creases, and that the needed capital can largely 
come from current production or existing credit 
facilities with only minor modifications. The 
statement does imply, however, that consider- 
able capital is required for agricultural develop- 
ment encompassing irrigation, roads, market fa- 
cilities, etc. 



12 



ILLINOIS AGRICULTURAL ECONOMICS, DECEMBER, 1964 



unless careful attention is given to the 
areas of potential conflict and consistent 
policy decisions are developed. It is 
recognized that not all of these goals can 
be resolved by economists, for many of 
them have political and social overtones 
which must be resolved at least partially 
on noneconomic criteria. In the demo- 
cratic process, we like to think that this 
is done at the ballot box, but the use 
of the ballot box does not relieve the 
economist of the responsibility of show- 
ing the consequences for the various lines 
of action which might be taken. 

Research to analyze the implications of 
the several policy objectives set for the 
agricultural sector should prove most 
useful in speeding up agricultural de- 
velopment and providing exciting and 
stimulating activity for economists inter- 
ested in economic development. 

As an example of what can happen 
when these broad policy objectives are 
not coordinated, let me cite the experience 
of one country which has recently pre- 
pared a plan for economic and social 
development. I have not studied the plan 
in detail, but from a superficial look at 
the agricultural part I was impressed 
with the attention given to describing the 
present situation as accurately as possible. 
This was then used as the foundation for 
projecting output on the basis of yields 
from experimental results and from im- 
proved practices presently in use on the 
better farms. The projected increased 
output appeared to be attainable and it 
would result in increased levels of in- 
come and living for the members of the 
agricultural labor force. The plan ade- 
quately met the goals of increased food 
supplies for both domestic consumption 
and export. 

Mechanization, an integral part of im- 
proved practices and high yields, was 
not only one of the main factors making 
for increased output, but it also made 



possible a reduction in the agricultural 
labor force, thereby releasing labor for 
industrial expansion. However, unem- 
ployment is one of the problems facing 
the country, and it appears that the coun- 
try can ill afford to substitute capital for 
labor under existing conditions. 

Mechanization, however, greatly in- 
creased the efficiency of the farm labor 
force, so that total man-days of work 
needed to bring about the increased out- 
put projected in the plan only rose from 
70 million to 120 million in a 10-year 
period. However, the plan projected such 
efficient labor use that while man-days of 
work increased, the number of people 
working in the agricultural sector actually 
decreased from 800,000 to 450,000 dur- 
ing this time. This came about since the 
average days worked per man increased 
from 90 to 270. 

From the standpoint of increasing per 
capita farm incomes, the projected plan 
was quite successful. However, in the 
process of increasing agricultural output 
and per capita farm incomes, attention 
was diverted from two other aspects 
which might conflict with overall goals 
for economic and social development. 

One of these concerns the welfare of 
the approximately half million people who 
would have to leave the agricultural labor 
force as the result of farm mechaniza- 
tion, since industrialization does not ap- 
pear able to provide this number of addi- 
tional jobs. 

The other aspect is the shortage of 
capital. For instance, it is estimated that 
a $5,000 investment is needed for each 
new industrial job created. Yet, the capi- 
tal which might be used to create employ- 
ment for displaced farm workers is 
projected for use in mechanizing agri- 
culture. This suggests the problem of 
how best to allocate scarce capital. How- 
ever, before the optimum allocation can 
be made, information is needed on the 



POLICIES FOR AGRICULTURAL DEVELOPMENT 



13 



returns to capital invested in agriculture 
compared to that invested in industry. 
Attention needs to be focused on deter- 
mining the returns to capital in alternative 
uses if scarce capital is to be correctly 
allocated. It is not sufficient to know that 
returns to capital invested in agriculture 
are positive. 

Optimum capital allocation also re- 
quires information on returns earned 
from alternative investments. For in- 
stance, data are needed on rates of re- 
turn earned by capital invested in farm 
mechanization, construction of fertilizer 
plants, markets, irrigation, factories for 
light and heavy industries, and rural 
versus urban infrastructure such as 
schools, housing, roads, electricity, etc. 

One area requiring research attention 
is the effects of mechanization on yields. 
Often when considering the economics of 
mechanization an assumption of capital- 
labor substitution along the same produc- 
tion possibility curve is made. However, 
this may not approach the real situation 
for many underdeveloped countries. Tu- 
nisia is one example. On my recent visit 
there, these figures were presented rela- 
tive to wheat yields and improved prac- 
tices: yields on farms using improved 
practices were five times higher than on 
farms using traditional practices. For 
example, advanced practices yielded 15 
quintales of wheat per hectare, medium 
practices 12, and traditional methods 3 
quintales per hectare. Practices used to 
achieve these higher yields included the 
use of improved seeds, fertilizer, crop 
rotation, insect control and mechaniza- 
tion. 

Obviously, not all the increases in 
yields can be attributed to mechanization, 
but the thinking was that mechanization 
was essential to implement some of the 
other practices. For example, tractors 
were reported to be needed for deep 
plowing and proper seedbed preparation 



to better control moisture and weeds. 
Mechanization was also reported to have 
a positive effect on yields by making it 
possible for work to be done at the most 
appropriate time, since the Tunisian cli- 
mate is such that the optimum time for 
performing certain tasks is of rather 
short duration. Experiments need to be 
conducted to determine the extent to 
which mechanization contributes to in- 
creased yields, and the extent to which 
it is primarily a labor substitute, before 
the real cost of mechanization can be de- 
termined. 

While this is essential information, it 
provides only part of the solution, for 
the capital allocation problem cannot be 
resolved apart from the labor allocation 
problem. Therefore, other studies need 
to be made concerning the best use of 
labor resources, not just from the stand- 
point of the welfare of those remaining 
in the agricultural labor force but from 
the standpoint of total society as well. In 
this respect, the work of Folke Dovring 
on the relative size of the farm labor 
force as an important dimension in agri- 
cultural development should prove quite 
useful. For instance, what are the rela- 
tive costs (benefits) of programs de- 
signed to encourage excess farm labor to 
stay on the farm — or at least not migrate 
to major urban centers — compared to 
the costs (benefits) of providing the 
necessary urban infrastructure to accom- 
modate these people and prevent political 
and social unrest from developing. 

Developing Appropriate Objectives 

The proper concern in developing 
policy must be for the future welfare of 
all persons now in the farm labor force 
(even though some of them may later 
change to nonfarm employment), not just 
for the welfare of those remaining in 
agriculture. Many programs appear to 
ignore this aspect and seem to be directed 



14 



ILLINOIS AGRICULTURAL ECONOMICS, DECEMBER, 1964 



primarily toward improving the lot of 
those remaining in agriculture, appar- 
ently forgetting the many who will mi- 
grate to villages or urban areas, as well 
as that part of the rural population not 
included in the agricultural sector. It is 
easy to show that the simplest way to 
improve the conditions of people remain- 
ing in agriculture is to devise ways to 
speed up the movement of people off 
farms, thereby eliminating unemployment 
and underemployment in agriculture. But 
what happens to the welfare of those 
people who migrate off farms ? 

I would urge that in our research 
efforts some attention be given to devel- 
oping consistent, compatible objectives 
for the agricultural sector along with ap- 
propriate policy measures to achieve 
them. Care should also be taken to in- 
sure that these goals are consistent and 
compatible with plans and programs for 
overall national economic and social de- 
velopment. This would then set the broad 
parameters within which agricultural de- 
velopment must take place, and provide 
the framework for answering questions 
such as the relative emphasis to be given 
to the commercial versus subsistence sec- 
tors, and within the commercial sector 
whether production for export or for in- 
ternal consumption should be emphasized. 

Programs to achieve these objectives 
can take many and varied forms. In 
writing papers on policy, the temptation 
is to become a purist and make sugges- 
tions such as ' 'policy measures ought to 
be consistent and should reinforce each 
other in the attainment of compatible 
goals and objectives." 

This advice might mean, for instance, 
that policy measures should not be de- 
signed whereby one is directed toward 
transferring capital into the agricultural 
sector (to induce greater agricultural out- 
put) while another has the objective of 
transferring capital out of agriculture 



(to speed up the industrialization proc- 
ess). Obviously, while capital can be 
transferred into and out of agriculture 
simultaneously, the end result of such 
apparently conflicting programs must be 
a net transfer either into or out of agri- 
culture; it cannot be both. However, the 
net result of capital transfers may be of 
less importance than the fact that capital 
is induced to move from less productive 
to more productive uses. This may most 
easily be accomplished through a series 
of measures which have apparently con- 
flicting end results rather than policy 
measures which permit only a one-way 
movement. 

It is in resolving problems like these 
that the economist is only too happy to 
have the assistance of experts in other 
fields. I say "too happy" for I am afraid 
there are cases where economists use 
other disciplines as a crutch and an ex- 
cuse for not working out answers to 
difficult problems. The field of incentives 
is such an area. Economists want (or 
need?) the economic rational man to pop- 
ulate his universe, with the goal of profit 
maximization guiding everyone's actions. 
In this setting, manipulation of factor 
and product prices, combined with taxes 
and subsidies, can provide the needed 
incentives to induce fairly rapid shifts 
in the manner in which resources are 
used. 

But at the present state of knowledge 
of underdeveloped areas, we are not sure 
to what extent these societies act as ra- 
tional, profit-maximizing groups. There- 
fore, doubts arise concerning the role and 
effectiveness of price and income incen- 
tives in inducing shifts in resource use, 
with the result that the problem is passed 
on to other social scientists. To avoid 
any misunderstanding, let me say that I 
welcome the presence of social scientists 
from other disciplines, both as they work 
independently and in an interdisciplinary 



POLICIES FOR AGRICULTURAL DEVELOPMENT 



15 



way, but I also think that economists 
have often stopped short of where their 
kit of tools could take them. For an 
illustration of how far the economist can 
go in this direction, see the recent book, 
Transforming Traditional Agriculture, 
by T. W. Schultz. 

Determining an Acceptable 
Rate of Growth in Output 

Turning to another point, I would like 
to challenge you to work on determining 
an acceptable rate of growth in output 
for the agricultural sector. Here I think 
you must decide whether the criterion 
is to be the performance of the agricul- 
tural sector as a biological process sub- 
ject to certain natural laws of plant and 
animal reproduction and growth, or the 
need for certain quantities of food and 
fiber to feed a given number of people 
and furnish a certain amount of foreign 
exchange. 

In the former case, the rate of in- 
crease in total output may be the appro- 
priate measure, and, if so, many of the 
underdeveloped countries compare quite 
favorably with the performance of the 
agricultural sector in developed econo- 
mies. However, if the criterion is need, 
then change in per capita output is the 
better measure, and here most countries 
have a very poor record. It should be 
remembered, however, that the record 
is poor primarily because of a variable 
exogenous to the agricultural sector, 
namely, the rate of population growth. I 
raise this point for I think it may help to 
put in proper focus the problems of agri- 
cultural development. 

Agricultural plans often project in- 
creased agricultural output on the basis 
of per capita requirements, but is there 
any logical reason to expect that agri- 
cultural output is principally a function 
of population? This could, of course, be 
the case where there is a lot of unsettled, 



fertile land. Honduras may, in fact, be 
such a place, for there agricultural out 
put seems to have been closely related 
to population growth. But some other 
countries do not have large areas of 
unsettled, fertile land as does Honduras. 
These comments are not made to suggest 
that trying to find the key to greater agri- 
cultural output is futile, but rather to 
encourage studies which can guide plan- 
ners in setting realistic targets for the 
agricultural sector. If in the meantime 
greater output is obtained, much less 
harm is done if plans underestimate 
rather than overestimate agricultural 
growth rates. 

Problems of Aggregate Data 

Before terminating our discussion of 
policy and research needs at the national 
level, some comments on difficulties in- 
volved in working with aggregate data 
may be in order. I would like to dismiss 
the topic by saying that there are no good 
data and move hurridly on to something 
else. But, if work is to be done in the 
area of agricultural development, we 
must accept the fact of inadequate data 
and use whatever figures are available. 

Actually, the fact that data exist, in it- 
self, often presents a problem, for in 
many cases, data are superabundant in 
the sense that there may be several series 
depicting the same thing, with each series 
different from the others. The researcher 
is then faced with the problem of either 
selecting one set of data or modifying 
all of them to construct his own. One 
must be prepared for additional frustra- 
tions too, for not all series-makers are 
kind enough to include information on 
how the data were put together. One 
then has the choice of either taking them 
or leaving them. In this connection, I 
would urge that investigators be quite 
meticulous in showing exactly how each 
figure presented was calculated. This will 



16 



ILLINOIS AGRICULTURAL ECONOMICS, DECEMBER, 1964 



serve the dual purpose of permitting 
others to evaluate whether the figure is 
the measure needed for their work, as 
well as setting an example for research 
workers in less-developed countries. 

The difficulty of compiling accurate na- 
tional statistics on acreage, yields, and 
total production in countries where a 
large part of agricultural output never 
enters market channels is readily under- 
stood. Likewise, where price data are al- 
most nil, one can appreciate the problems 
encountered in trying to calculate an out- 
put index. However, even though the 
margin of error may be great, these 
crude estimates are better than none 
and provide the basis for at least a begin- 
ning analysis of the process of agricul- 
tural development in that country. 

Micro Analysis 

In addition to working on policy meas- 
ures related to the function and role 
of the agricultural sector in the overall 
plan for economic and social develop- 
ment, appropriate policy measures must 
also be developed to insure that these ob- 
jectives are reached. 

In this context, I would like to make 
the big jump from a consideration of 
aggregates at the national and sector level 
to studying the behavior of individual 
farm units. Attempts to explain the per- 
formance of underdeveloped economies 
have largely been made in terms of 
macroanalysis, with relatively little atten- 
tion given to lower levels of aggregation. 
However, increases in agricultural output 
are not the result of some action by the 
agricultural sector, but rather are the 
result of actions taken by individual 
farmers. Even though this is where pro- 
duction increases are born, little is known 
about production possibilities in terms of 
physical response, costs and returns, fac- 
tor substitution, scale effects, etc. With- 
out these data, however, it is difficult to 
go the next step of making the correct 



selection of enterprises and the most 
efficient allocation of resources. 

Important and basic as research on 
these problems is, there remains another 
area still more basic — that of getting a 
plow in the farmer's hands and seeds and 
fertilizer in his furrows — which also 
merits much more attention than it is 
presently receiving. 

In order to adequately work on these 
problems, research activity must leave the 
capital city and be carried on at the 
village and individual plot level. This 
may appear to be a rather hopeless task, 
for while the data needed to carry on 
aggregate analysis are often quite in- 
adequate, they are usually superior, both 
in quality and quantity, to data needed to 
carry on analysis at the farm level. In 
many cases farm-level data are almost 
nonexistent. However, one needs to keep 
the proper perspective and remember that 
the problems and opportunities facing 
farmers in underdeveloped economies are 
quite different from those facing farmers 
in developed countries, for the magnitude 
of expected changes in output varies 
greatly. 

In developed economies, the innovator 
may strive to get a 5-, 10-, or 15-percent 
increase in yield, whereas in underdevel- 
oped economies improved practices are 
expected to result in 2-, 5-, or 10- fold 
increases in agricultural output. To work 
on problems of agricultural production 
and efficiency of developed countries, 
marginal analysis — "a little more or a 
little less" — has significance, but this has 
little relevance for solving problems of 
underdeveloped countries. This does not 
mean that the principles and concepts of 
marginal analysis are not appropriate and 
useful; they are. What it does mean is 
that the degree of precision needed is 
much less. In working on problems re- 
lated to low productivity, one does not 
need the precise data required for similar 
research in developed economies. 



POLICIES FOR AGRICULTURAL DEVELOPMENT 



17 



1 can use an example from Chile to 
illustrate some of the difficulties of work- 
ing at this level. Among my chief 
sources of data when working in that 
country were the records kept on a 
100,000-acre corporation farm. In re- 
turn for access to their records, I was 
to assist them in working out the opti- 
mum enterprise combination and the 
most efficient methods of production. 
Cheese was the chief product sold. This 
was manufactured on the farm from a 
herd of some 5,000 cows divided into 50 
different milking units. Most of the land 
was in pasture, wheat and oats. 

The problem was to determine the opti- 
mum number of cows and acreage of 
wheat, oats and pasture, which was 
never accomplished. After much study 
of the problem from their record books 
(which contained sufficient data to calcu- 
late fairly accurate enterprise costs and 
returns information) and from several 
visits to the farm (which afforded me 
the opportunity to observe work pro- 
cedures and practices) I concluded that 
given the confines within which manage- 
ment chose to operate, net income and 
output could both be increased by means 
of the kind of reorganization the man- 
agement wanted and that this would re- 
sult in increased returns to the owners. 

However, the increase in income 
brought about by these changes would be 
negligible compared to what was possible 
if some fairly simple yet fundamental 
changes in practices were made. 2 These 
changes would have been practically cost- 
less from a monetary standpoint, but 
apparently carried a high price in terms 
of employer-manager-peasant relation- 

2 Examples of the kind of changes suggested 
are : change from once-a-day to twice-a-day 
milking, separate calves from cows, prohibit 
beating and exciting cows at milking time, 
select herd on basis of milking ability, keep 
breeding and milking records to base selection 
on, and institute pay incentives for milkers and 
those responsible for the dairy. 



ship, beliefs and traditions, method of 
wage payments, etc., for management re- 
fused to make them. Rather they wanted 
a high-powered (preferably electronic 
computer) linear-programming-type so- 
lution which would tell them the exact 
number of cows to keep along with the 
precise acreage of pasture, wheat, and 
oats. They did not, however, want 
changes that would affect the grassroots 
of production. Neither very precise data 
nor highly sophisticated techniques of 
analysis were needed on this farm to 
effect really significant output increases, 
yet management wanted no simple solu- 
tion. 

There are two points concerning this 
example which I would like to stress: 

(1) the pressure that is often generated 
for sophisticated studies, similar to those 
carried out in highly developed agricul- 
tural sectors, even though they may be 
quite inappropriate for reasons of inade- 
quate data, relatively high cost, and in- 
ability to properly apply the results; and 

(2) the importance of the individual 
farm worker, be he owner or hired labor, 
as a prime factor determining the final 
level of output and efficiency. 

A story from a research project on 
how decisions are made in traditional 
agriculture reports that the absentee 
landlord, while thinking that he makes 
the decisions concerning what to plant, 
how to plant it, and where to plant it, 
was correct on only one count. Crops 
were planted in the fields he designated, 
but it was the actual laborers who in the 
final analysis decided what seed would 
actually be placed in the ground and the 
method of placing them there. 

Project Analysis 

Having established, I hope, the impor- 
tance of greatly increased research ef- 
fort at the micro or farm level, let me 
urge equally the need for research in an 



18 



ILLINOIS AGRICULTURAL ECONOMICS, DECEMBER, 1964 



area which to date has been almost com- 
pletely neglected. This concerns how to 
relate and tie together the results from 
macro and micro studies. 

It is useful and necessary to know the 
increased quantities of agricultural out- 
put needed to meet future demand 
(which also needs to be estimated), and 
how much of the increased output can 
come from increased yields and how 
much must come from additional land 
area. Likewise, it is useful to know the 
additional quantities of capital and credit 
required for the purchase of improved 
seed, fertilizer, machinery, gasoline, etc. 
to achieve higher yields, and the addi- 
tional marketing facilities needed for 
successful marketing of the increased 
output. But the question still remains: 
How do we induce traditional agriculture 
to adopt on a large scale the improved 
production practices which are successful 
on a few farms ? Is there one factor - — 
be it land reform, improved marketing, 
sufficient credit, more education — which 
will act as the catalyst and kick off the 
process? Or must there be a bundle of 
things, and, if so, what are these factors 
and how should they be tied together ? 

Perhaps a fruitful avenue of approach 
would be project analysis of programs 
completed or now in progress. For in- 
stance, how effective was Plan Chilian in 
changing traditional farming practices in 
the central valley of Chile? Did output 
and incomes increase after the program 
was started, and, if so, can these in- 
creases be attributed to the program? 
What is the relevance of techniques used 
in the program to other areas? Another 
important but very difficult question: 
Could the resources in Plan Chilian have 
been invested some other way to have 
produced even greater results? A study 
of the package program in India to an- 
swer similar questions might also prove 
very useful in throwing light on the con- 



ditions necessary for inducing develop- 
ment. 

The USDA is now engaged in a study 
of factors associated with differences and 
changes in agricultural production in 
underdeveloped countries. As part of 
this study, a comparative analysis will be 
made of yearly changes and long-term 
trends in agricultural output and pro- 
ductivity and of the technological, eco- 
nomic, and institutional conditions asso- 
ciated with these differences. It certainly 
is our expectation that out of this will 
come some insights into the factors re- 
sponsible for growth and stagnation. 

Specific Program Area 

Having touched on problems asso- 
ciated with various levels of aggregation, 
I would now like to turn to one specific 
problem area — the manner in which out- 
put moves from the farm to the con- 
sumer. 3 It is my belief that improvements 
in the marketing system hold forth more 
promise as a way of increasing food sup- 
plies in the short-run context of two to 
four years than do improvements in prac- 
tices used to grow the crops. This is one 
of my hypotheses, and I state it not to be 
challenged on whether improved produc- 
tion or marketing practices are more im- 
portant, but rather as a way of empha- 
sizing an area which until recently was 
almost completely ignored. 

Let me caution you, however, that 
present U.S.-type market research is not 
what is needed in most underdeveloped 
countries where marketing practices are 
often tied to land tenure or credit ar- 
rangements as well as to social and 
religious activities. Likewise, cumber- 

3 Marketing is just one of many such areas 
which need investigation, but time does not per- 
mit their elaboration. For instance, land tenure 
problems have been purposely ignored in this 
paper, not because they are unimportant but 
rather because your program committee saw 
fit to devote part of the program specifically to 
them. 



POLICIES FOR AGRICULTURAL DEVELOPMENT 



19 



sonic marketing systems have also often 
evolved as a way of mopping up some 
of the excess labor supply. Availability 
of food, storage facilities, climate, re- 
ligion, and other cultural patterns have 
all interacted to form tastes and prefer- 
ence for certain foods and dislikes for 
others, all of which influence marketing- 
practices and procedures. The simple 
fact that individual households did not 
have refrigerators was finally hit upon 
as one of the main explanations of milk 
marketing practices in one city, and 
further that it was futile to try to de- 
velop a large fluid milk industry until 
home refrigeration became more com- 
mon. 

Improved marketing practices should 
not only reduce the cost of getting pro- 
duce from the farm to the consumer but 
they should also encourage increased 
output. There is undoubtedly a vicious 
circle here in that lack of market facili- 
ties prevents increased output, while lack 
of volume hinders the development of 
efficient marketing facilities. How to 
break this circle certainly merits our 
research attention. 

One of the big problems facing under- 
developed countries is how to integrate 
the traditional sector of agriculture into 
the market economy. Improved market- 
ing practices should go a long way to- 
ward achieving this. At the present 
time, the traditional sector of agriculture 
has little choice with regard to the selec- 
tion of either factor or product markets. 
An individual is usually faced with one 
buyer or seller, and in some cases these 
are the same. Buying basic needs and 
selling excess products are more or less 
routine acts not requiring any thought 
process. The peasant is really outside the 
process; in a large sense, he makes no 
decision other than deciding whether to 
buy or to sell certain goods. To a large 
extent, this is a routine decision, decided 



more on (lie basis of custom than anal 
ysis. The concept of a price-quantity 
schedule is unknown to him, unless it 
may be the perverse backward-bending 
curve. 

Unfortunately, there are too few 
studies which can provide the basis for 
challenging these hypotheses, and so I 
speak with some impunity. As an ex- 
ample of the wide latitude this area 
offers, I would like to mention one case 
where technical assistance sought to 
integrate subsistence people into the 
money economy through combined pro- 
duction-marketing assistance in the 
growing and selling of wheat, their 
principal crop. At various meetings of 
a group of subsistence farmers, de- 
cisions were worked out concerning the 
choice of seed, the proper way to plant 
and fertilize, and a workable schedule 
prepared for harvesting and selling the 
wheat, all as part of a joint effort. Ar- 
rangements were also made for the 
group to get a loan from the local bank 
to pay for the seed and fertilizer. How- 
ever, there was one requirement which 
reduced the initial group from 30 down 
to 6: each person had to exercise the 
initiative of going to the local bank and 
filling out a standard loan application, 
arrangements having been made before- 
hand with bank personnel to give special 
consideration to this group. Even though 
this had been explained to them, the 
great majority were so far removed from 
the practices of the modern, money 
economy that they could not cross over 
into new territory — in this case the 
bank, which, of course, all had passed on 
the outside many times in their lives. 

The point I am trying to make here is 
that relatively simple acts of association 
and participation in what are accepted 
routine practices to many of us, may be 
as important in integrating subsistence 
families into the market economy as 



20 



ILLINOIS AGRICULTURAL ECONOMICS, DECEMBER, 1964 



putting more money into their pockets. 
The marketing process seems like an 
effective way for these contacts to be 
made. 

In closing, I would like to review 
briefly what I have tried to do. The 
assignment, as I interpreted it, was to 
discuss policy areas related to agricul- 
tural development in the context of 
giving direction to an agricultural experi- 
ment station research program on prob- 
lems of agricultural development. In 



doing this, I have tried to highlight some 
of the areas which appear to be either 
stumbling blocks to progress or key 
factors for rapid development. There- 
fore, in some cases I may have strayed 
from strictly policy measures into iden- 
tifying what appears to me to be signifi- 
cant areas needing study. Certainly, 
however, the end result of a study in any 
of these areas should have strong policy 
implications, if not actual policy recom- 
mendations. 



Some Demographic Features of 
Underdeveloped Countries 

B. D. MISRA 
Department of Sociology, University of Chicago 



Various criteria have been 

used to define an underdeveloped coun- 
try. Among them are the economic (per 
capita income, etc.), social (status of 
women, etc.), cultural (proportion of 
illiteracy, etc.), or the ones describing 
the state of public health or population 
characteristics (average expectation of 
life, fertility, mortality, etc.). 

Population characteristics, especially 
those related to the problem of popula- 
tion growth, have received wide attention 
from the economists, demographers, and 
planners in various countries. Not all of 
the underdeveloped countries face the 
pressure of population in the same de- 
gree. In those countries where the 
growth of population is rapid, a major 
share of the income will have to be spent 
for expanding the existing facilities 
rather than for improving the tools of 
production or the living conditions of the 
masses. Moreover, if the population in- 
creases faster than the national income, 
the living standard may actually fall. 



Problems of population growth are 
being increasingly studied in the context 
of their relationship to economic develop- 
ment. If, along with the rapid growth 
of population, a country could achieve an 
equally rapid economic and social de- 
velopment, there would be no problem. 
Unfortunately, however, population 
growth proves a major hazard in eco- 
nomic development. Poverty, malnutri- 
tion, illiteracy, social retardation, and 
political instability are the features in 
countries with high birth rates. Poverty 
generates conditions that preserve pov- 
erty. And likewise population growth 
creates conditions that lead to continued 
population growth. Roughly two-thirds 
of the world's people live in the under- 
developed countries. 

Table 1 presents the estimates of the 
past, starting with 1900, and projections 
of the future population for the de- 
veloped and the underdeveloped nations 
of the world. 

Let us next consider the demographic 



DEMOGRAPHIC FEATURES OF UNDERDEVELOPED COUNTRIES 



21 



Table 1. — Growth of Population in the Twentieth Century' 

Underdeveloped counl ries 

Year Developed — ; 

countnes b Total Asia c America Africa 

Population (millions) 

1900 554 996 813 63 120 

1925 700 1,207 961 99 147 

1950 838 1,659 1,297 163 199 

1975 1,115 2,741 2,107 303 331 

2000 1,448 5,459 4,145 651 663 

Percent increase 

1900-1925 26.4 21.2 18.2 57.1 22.5 

1925-1950 19.7 37.4 35.0 64.6 35.4 

1950-1975 33.0 65.2 62.5 85.9 66.3 

1975-2000 29.9 99.2 96.7 114.8 100.3 

Percent of earth's total 

1900 35.7 64.3 52.4 4.1 7.7 

1925 36.7 63.3 50.4 5.2 7.7 

1950 33.6 66.4 51.9 6.5 8.0 

1975 28.9 71.1 54.6 7.9 8.6 

2000 21.0 79.0 60.0 9.4 9.6 

a Data for 1900-1950, enumerated or estimated; 1 975 and 2000 projections based on high estimates. 
b Includes Europe, U.S.S.R., Northern America, Australia, New Zealand, and Japan. 
c Excludes the Asian portion of the U.S.S.R. and Japan. 

Source: U.N. Department of Economic and Social Affairs, The Future Growth of World Population. Table 
p. 23, Population Studies Xo. 28, 1958. 



characteristics of the underdeveloped 
countries. 

Demographic Characteristics 

High fertility. Populations in Africa, 
Asia, Latin America, and the non- 
European peoples of Oceania have high 
fertility patterns. Most of the countries 
in these regions have a birth rate of 
about 40 per thousand and an average 
of five children at the end of the repro- 
ductive period. 

Fertility patterns within a country 
often show varying trends, and a knowl- 
edge of these differential patterns proves 
helpful in studying other phenomena. It 
is generally believed that urban dwellers 
have a somewhat lower birth rate than 
the rural population. However, the ur- 
ban-rural differentials are not marked in 
all of the underdeveloped nations. This 
is because "in the economically advanced 
nations of the world, urbanization is both 
an antecedent and a consequent of tech- 



nological advance and of a high level of 
living — - a symbol of man's mastery over 
nature. In the underdeveloped nations, 
however, urbanization represents instead 
the transfer of rural proverty from an 
overpopulated and unsettled countryside 
to a mass urban setting. In the economi- 
cally underdeveloped area of the world, 
urbanization is outpacing economic devel- 
opment and the city is more a symbol of 
mass misery and political instability than 
of man's conquest of nature." 1 

In Puerto Rico the birth rate of the 
rural population is said to be consider- 
ably higher than that of the urban popu- 
lation. 2 Studies conducted in India have 
observed higher fertility for the rural 
population, but the urban-rural differen- 
tials in fertility have not changed signifi- 



1 Philip M. Hauser, Population Perspective. 
Rutgers University Press, p. 22. 1960. 

' T. M. Stycos, Family and Fertility in 
Puerto Rico. Columbia University Press. 1955. 



22 



ILLINOIS AGRICULTURAL ECONOMICS, DECEMBER, 1964 



Table 2. — Population, Rate of Increase, and Birth and Death Rates 
for the World, Continents, and Regions (Selected Years) 



Continent 
and region 



Popu- 
lation 
1961 



Annual 

rate of 

increase 



Birth 

rate, 

1957-61 



Death 

rate, 

1957-61 



World total 3 ,069 

Africa 261 

America 422 

Northern America 204 

Middle America 69 

South America 149 

Asia 1,721 

Southwest Asia 79 

South Central Asia 575 

Southeast Asia 223 

East Asia 844 

Europe 430 

Northern and Western Europe. . . . 143 

Central Europe 140 

Southern Europe 147 

Oceania 16.8 

U.S.S.R 218 

Source: U.N., Demographic Yearbook, 1962, Table 2, p. 124. 



millions 






1.8 


36 


18 


2.1 


46 


25 


2.3 


34 


13 


1.8 


24 


9 


2.8 


42 


14 


2.7 


45 


18 


2.0 


41 


21 


2.5 


46 


21 


1.8 


40 


22 


2.3 


44 


21 


2.0 


40 


20 


0.8 


19 


10 


0.7 


18 


11 


0.8 


19 


11 


0.8 


21 


9 


2.5 


25 


8 


1.7 


25 


7 



cantly since 1900. 3 Fertility has been 
found to be inversely correlated with 
social position. "Agricultural peoples 
apparently have a higher fertility than 
the trading and professional classes, and 
within the agricultural category owners 
and tenants have a lower fertility than 
do field laborers. The child-woman ratio 
tends, also, to be inversely correlated 
with literacy." 4 Religious differentials in 
fertility are also an important aspect in 
the fertility pattern and are quite pro- 
nounced in some of these countries. 
Table 2 shows some of the fertility var- 
iations in the broad world regions. 

High and rapidly declining mortality. 
In 1960 the death rate for the world was 
roughly 19 per thousand. Africa, Middle 
and South America, and Asia have much 
higher mortality rates than other regions 
(Table 2). However, many nations in 

3 K. Davis, The Population of India and 
Pakistan. Princeton, pp. 70-73. 1951. 

4 U.N., Determinants and Consequences of 
Population Trends, p. 95. 1953. 



these regions have lately experienced a 
drastic reduction in their death rates. In 
Ceylon, for example, mortality was re- 
duced by 50 percent in less than 10 
years. This was made possible by the 
importation of low-cost techniques of 
public health. 

A reduction in mortality in the ad- 
vanced nations of the world was made 
possible by centuries of development in 
technology, productivity, environmental 
sanitation, hygiene, and modern medi- 
cine; the underdeveloped nations do not 
have to wait for these consecutive in- 
novations. Major economic improvement 
may be a sufficient condition, but these 
days it is not a necessary condition for 
a decline to occur in mortality. It has 
been observed that the socio-economic 
policies that are directed towards re- 
ducing fertility in the long run will re- 
duce the mortality earlier. In England, 
the birth rate began to decline more than 
a century after its death rate started de- 
clining. During the period of industriali- 



DEMOGRAPHIC FEATURES OF UNDERDEVELOPED COUNTRIES 



23 



zation, the population of Japan increased 
from 30 to more than 84 millions because 
the death rate declined much earlier than 
the birth rate. In the underdeveloped 
nations, mortality lias been reduced by 
external factors, and these factors have 
not become an essential part of the over- 
all process of social change. 

Rapid population growth. Within 
the underdeveloped regions, population 
has recently been growing at a more or 
less rapid rate. The annual rate of in- 
crease in Latin America in the last few 
decades has been particularly rapid 
(Table 2). The United Nations esti- 
mates for future world population indi- 
cate further increases in the rate of 
growth of world population in the com- 
ing decades. Between 1950 and 1975 
they forecast (based on their medium 
assumption) the annual rate of growth 
to be 2.1 percent, and between 1975 and 
2000 the growth rate would go up to 2.6 
percent. These rates would double the 
population in 33 and 27 years respec- 
tively. 

These high population growth rates 
are the direct outcome of the high birth 
rate and a declining death rate. A few 
decades ago, both birth and death rates 
in these underdeveloped countries were 
high. The death rate was fluctuating 
with varying fortunes. The equilibrium 
was established at the high level of crude 
rates. This equilibrium was broken with 
the decline in mortality in the underde- 
veloped countries and with the conse- 
quent, outburst of population growth. 

Demographers have explained the 
population growth in terms of the transi- 
tion theory. They trace this growth 
through various stages. The demo- 
graphic cycle shows a sequence of high 
birth-high death, high birth-low death, 
and low birth-low death. 

In an agrarian low-income country, the 



birth rate is high and relatively stable, 
and the death rate, although high, is 
likely to fluctuate. Gradually the economy 
changes and the death rate declines, and 
somewhat later the birth rate begins to 
decline. Between the decline in the death 
rate and the decline in the birth rate, 
there occurs an accelerating growth in 
population. Most of the underdeveloped 
countries find themselves today in this 
transition period. Some of these lands 
have the death rates of advanced coun- 
tries and birth rates of backward coun- 
tries. Later on, according to the transition 
theory, the birth rate starts declining and 
the death rate either continues to decline 
further or remain stationary at a low 
level. The decline in the birth rate 
lags behind and finally, when the reduc- 
tion in the death rate reaches its lowest 
minimum, the birth rate catches up with 
the death rate and a low stationary 
population is established. 

The transition theory has been used 
to explain what happened in the past so 
far as population adjustment was con- 
cerned, but it may not work in predicting 
what might happen in the future. For 
this reason, the transition theory has 
theoretical significance only. 

A point of interest in considering the 
difference in the population growth of 
the advanced and the underdeveloped 
nations is that the developed nations had 
their economic takeoff before their popu- 
lation explosion, while many of the un- 
derdeveloped countries are experiencing 
their population explosion before the 
takeoff. 

Young age composition. A study of 
age composition of a country is impor- 
tant insofar as it enables us to study the 
pattern of life cycles. Individuals enter 
the labor force, end their education, 
marry, and leave the labor force at dif- 
ferent ages. These phases of life entail 



24 



ILLINOIS AGRICULTURAL ECONOMICS, DECEMBER, 1964 



different aspects of human behavior, and 
the economic and social characteristics 
of the individual change as a consequence 
of the change brought about by varying 
ages. For this reason age is one of the 
first factors that must be controlled in all 
branches of research which involve the 
behavior of human beings before the 
effects or relationships between other less 
obvious factors can be assessed. 5 

In order to study the age composition 
of a population, the first thing that we 
should know is the proportion of the 
total population in each stage of the life 
cycle. Analysis will have to be made to 
see the various factors that are respon- 
sible for a given age composition. The 
three demographic components of growth 
— births, deaths, and migration — will 
have to be observed over a period of 
time. Differential birth and death rates 
produce differential wave patterns in the 
composition of the population at differ- 
ent ages. Migration, both in and out, 
likewise changes the age composition of 
the population. Let us see how the popu- 
lation components affect the age compo- 
sition of the population. 

In a situation of falling birth rates, 
the children would form a smaller pro- 
portion of the total population, while the 
proportion of people in the adult and 
older ages would go up. When the death 
rate at any age is declining, it will mean 
more survivors in the next age group, 
and this particular age group therefore 
will have a larger proportion of individ- 
uals. Differential reduction in the death 
rate has both direct and indirect conse- 
quences. A differential reduction in the 
death rate not only increases the propor- 
tion of individuals in the next age group, 
but also increases the proportion in all 

5 Donald J. Bogue, Population of the United 
States. The Free Press of Glencoe, New York, 
p. 92. 1959. 



later ages. Indirectly it will mean that in 
the case of individuals who are below 50 
years of age, a decline in the death rate 
would enable more people to marry and 
procreate. Survivors in the reproductive 
ages would have this indirect conse- 
quence on the age composition. 

Developed and underdeveloped coun- 
tries show different trends in age com- 
position (Table 3). In most of the 
underdeveloped countries, there is a 
higher proportion of children and youth 
and a smaller proportion of older per- 
sons. Those under age 15 often con- 
stitute about 40 to 45 percent of the 
total, whereas in the developed nations 
the percentage is roughly 25 to 30. The 
proportion of population in the working 
ages, particularly in the age group 20-44, 
is almost the same for all nations 
(roughly 30-35 percent). However, the 
underdeveloped countries with high birth 
and death rates have a much greater pro- 
portion of middle-aged population (in 
younger ages of the labor force) than 
the developed nations. This means that 
the proportion of seasoned and experi- 
enced workers in the labor force is less 
in the underdeveloped countries than in 
the developed countries. The relation- 
ship between high vital rates in the un- 
derdeveloped countries makes the age 
distribution of their populations rela- 
tively less advantageous. 

The U.N. report emphasizes that 
"paradoxically, one of the chief obstacles 
to economic development is the man- 
power shortage which exists even in the 
so-called overpopulated countries. An 
initial difficulty is that, owing to the age 
structure of the population, there are not 
enough adults. Furthermore, because of 
certain social customs only a relatively 
small proportion of the adult population 
in some of the underdeveloped countries 
is available for employment which would 



DEMOGRAPHIC FEATURES OF UNDERDEVELOPED COUNTRIES 



25 





Table 3. — Age Composition of Selected Countries of the World 




Continent 


Dependency ratio Percent distribution by a^<- 




and Country 


Total Youth Aged Total 0-19 20-34 45-64 


65 t 



Africa 

Egypt 1947 105.1 98.8 

Algeria 1953 132.3 125.1 

Nigeria 1952-53 121.2 115.0 

Mozambique 1940 109.9 105.2 

North America 

Canada 1953 86.1 71.6 

United States 1953 77.0 62.3 

South America 

Argentina 1947 80.8 73.8 

Brazil 1950 122.0 116.7 

Chile 1940 103.5 96.3 

Colombia 1938 122.9 116.5 

Asia 

Ceylon 1946 103.5 96.5 

Taiwan 1953 124.7 119.1 

India 1951 104.5 97.1 

Japan 1952 99.2 89.2 

Philippines 1948 138.3 130.7 

Thailand 1947 127.8 121.9 

Europe 

Austria 1952 66.7 48.7 

France 1953 71.4 51.8 

England and Wales 1953 66.1 47.5 

Source: U.N. Demographic Yearbook, 1948-54. 



6.4 
7.2 
6.2 
4.6 



14, 
14 

7. 
5. 
7. 
6. 



6.9 

5.6 
7.3 
10.0 
7.6 
5.9 

18.0 
19.6 
18.6 



100.0 
100.0 
100.0 
100.0 

100.0 
100.0 

100.0 
100.0 
100.0 
100.0 

100.0 
100.0 
100.0 
100.0 
100.0 
100.0 

100.0 
100.0 
100.0 



48.2 
53 . 9 
52.0 
50.2 

38.5 
35.2 

40.8 
52.5 
47.4 
52.3 

47.4 
53.0 
47.6 
44.8 
54.9 
53.5 



29.2 
30.2 

28.6 



35.0 
30.4 
34.2 
38.9 

36.2 
36.2 

39.1 
34.3 
36.4 
34.3 

36.9 
33.9 
36.0 
35.1 
32.6 
33.1 

33.8 
34.2 
35.5 



13.8 

12.7 

11.0 

8.8 

17.6 
20.3 

16.2 
10.7 
12.8 
10.6 

12.2 
10.6 
13.0 
15.1 
9.4 
10.8 

26.2 
24.1 
24.7 



3.1 
3.1 
2.8 

2.2 

7.8 
8.3 

3.9 
2.4 
3.5 
2.9 

3.4 
2.5 
3.6 
5.0 
3.2 
2.6 

10.8 
11.4 
11.2 



Table 4. — Illustrative Projections of the Population in an Underdeveloped Area a 
Projection A — Fertility continues unchanged. 
Projection B — Fertility falls linearly by 50 percent in 25 years, thereafter remains unchanged. 





Year 





10 


20 


30 


40 


50 


60 


150 


Projection A 


0-14 
15-64 
65 + 


434 

534 

32 


616 

718 
43 


population in 

870 1,261 

996 1,406 

65 90 


thousands 
1,840 
2,003 
132 


2,655 

2,901 

180 


3,848 

4,204 

245 


110,700 

120,800 
14,000 


Projection B 


Total 

0-14 
15-64 
65 + 


1,000 

434 

534 

32 


1,377 

567 

718 

43 


1,931 

637 

985 

65 


2,757 

676 

1,287 

90 


3,975 

783 

1,573 

132 


5,736 

901 

1,869 

180 


8,297 

994 
2,181 

245 


245,500 

3,014 

6,613 

850 




Total 


1,000 


1,328 


1,687 


2,053 


2,488 


2,950 


3,420 


10,477 



a Initial population 1.000,000 persons. Initial age distribution, fertility, and mortality typical of Latin America 
north of Uruguay. Mortality rapidly improving. 

Source: Coale, Ansley J., Population and Economic Development, The Population Dilemma, Prentice-Hall, Inc., 
1963, p. 50. 



contribute to economic development, 
even though in their traditional occupa- 
tions they are far from being fully em- 
ployed." 6 

6 U.N., Determinants and Consequences of 
Population Trends, p. 265. 1953. 



Table 4 illustrates the population pro- 
jections made by Coale, of an underde- 
veloped country with an initial popula- 
tion of one million (hypothetical). This 
table indicates the implications of popu- 
lation growth on the age composition, on 



26 



ILLINOIS AGRICULTURAL ECONOMICS, DECEMBER, 1964 



burden of dependency, and on growth of 
the labor force. Growth of population 
has, therefore, short-run, intermediate, 
and long-run implications. Projections 
based on two sets of assumptions — one 
where the fertility continues unchanged 
and the other where the fertility declines 
linearly by 50 percent in 25 years and 
remains unchanged after that — produce 
two widely different sets of age compo- 
sition and total population, and hence 
problems to the country. 

This table enables us to see the conse- 
quences of rapid and moderately grow- 
ing population. In the beginning the 
younger population tends to increase 
faster in the situations where the fertility 
continues unchanged (high fertility), 
and consequently the burden of depend- 
ency tends to increase. Three kinds of 
dependency ratios can be used for 
analysis (Table 3). These are: 



Dependency ratio 

Persons under 20 and 65 and over 
Population 20-64 years of age 



X 100 



This is actually the sum of two parts, 
which can be studied separately: 

Youth dependency 

Persons under 20 years 



Population 20-64 years of age 

and 

Old-age dependency 

Persons 65 years and over 
Population 20-64 years of age 

Since the age of entrance in the labor 
force varies from country to country and 
also within a country (often because of 
differences between the urban and rural 
population), it may be necessary to vary 
the lower and upper ages used for the 
computation of dependency ratios. 

After 30 years, population in the labor 
force age shows wide differences in the 
rate of growth because more people are 
in the reproductive age groups in a high- 



fertility population as compared to low- 
fertility population, and finally the effect 
can be seen in the size of the labor force. 
In the short run not only does a popula- 
tion with reduced fertility enjoy the 
benefit of dividing the national product 
among a smaller number of consumers; 
it enjoys the additional benefit of having 
a larger national product to divide. The 
underdeveloped countries have a high 
density of population relative to capital. 

High or low birth rates are crucial 
factors in determining the future pattern 
of most of the underdeveloped nations. 

In the underdeveloped countries, per- 
sons dependent on agriculture make up 
roughly two-thirds of the total popula- 
tion. And despite the fact that in these 
countries a large proportion of the popu- 
lation is dependent on agriculture — 
directly or indirectly — food supply is 
barely adequate to meet basic needs, and 
for the growing population increased 
food production is the most essential 
need. 

Table 5 shows the proportion of pop- 
ulation dependent on agriculture in se- 
lected countries. 

Demographic Problems 

In most of the underdeveloped coun- 
tries the demographic statistics are scanty 
and often imperfect. Therefore, when 
dealing with any problem requiring 
demographic data, it is necessary to 
know the extent of accuracy provided by 
the data. This would permit deriving 
significant answers. Many procedures 
are used to test the reliability of the data. 
Among these are comparing the observed 
data with a theoretical expected shape, 
comparing the data of one country with 
data from another country with similar 
conditions, comparing the census figures 
with the data obtained for nondemo- 



DEMOGRAPHIC FEATURES OF UNDERDEVELOPED COUNTRIES 



17 



Table 5. — Number and Percentage of Population Dependent on Agriculture 

(Selected Countries) 



Continent 
and country 



Total 
popu- 
lation 



Population dependent 
on agriculture 



Number 


Percent 


thousands 




6,010 


71 


9,084 


84 


1,423 


77 


2,078 


92 


3,292 


87 


3,682 


20 


6,185 


53 


784 


56 


1,986 


40 


3,332 


70 


395,500 


85 


249,122 


70 


34,546 


38 


14,481 


67 


13,267 


69 


12,211 


66 



., . thousands 

Algeria 1948 8,444 

Congo 1947 10,753 

Fed. of Rhodesia & Nyasaland 1950. . . 1 ,860 

Nyasaland 1949 2,250 

Sudan 1956 3,800 

South America 

Argentina 1952 18,040 

Colombia 1951 11,589 

Paraguay 1950 1 ,397 

Venezuela 1950 4,974 

Asia 

Cambodia 1958 4,740 

China (Mainland) 1948 456,841 

India 1951 356,879 

Japan 1960 93,406 

Rep Korea 1955 21 ,502 

Philippines 1948 19,137 

Thailand 1950 18,488 

Source: U.N., Compendium of Social Statistics. Table 



8, p. 91. 1963. 



graphic purposes, and by the technique of 
direct checks with balancing equations to 
test the consistency of increase in popu- 
lation at two different dates. This con- 
sistency can be checked by the simple 
equation of: 

Pz = Po + B + I — D — E where 
Pz = Population at the 

second census 
Po = Population at the 

first census 
B = Number of births during 

the intercensal period 
D = Number of deaths during 

the intercensal period 
I = Number of immigrants in 

the intercensal period 
E = Number of emigrants in 

the intercensal period 

In most of the underdeveloped coun- 
tries, registration of births and deaths 
either does not exist or is far from 
complete. If births are recorded better 
than deaths, the computed natural in- 
crease will be too high; and if the deaths 



are better recorded than the births, the 
natural increase, thus obtained, will be 
on the lower side. However, if both the 
births and deaths are registered incom- 
pletely and the completeness of registra- 
tion is of the same degree, the error in 
showing the natural increase will not be 
too great, as each will compensate for 
the other. 

The predominant illiterate popula- 
tion of the underdeveloped countries 
furnishes inaccurate ages (sex, however, 
is accurately reported). This inaccuracy 
is reflected in the censuses in the forms 
of heaping of ages at certain digits, 
overreporting of ages (for ages 65 and 
over), underreporting of ages (for ages 
below 65), advancing of ages of young 
children, and refusal to report the age. 
The other type of inaccuracy results 
from underenumeration. The age mis- 
statement occurs because of ignorance, 
negligence, deliberate misstatement and 
misunderstanding of the question. For 



28 



ILLINOIS AGRICULTURAL ECONOMICS, DECEMBER, 1964 



example, the population of Turkey of 
1945 shows: 

Number Number 
of males of females 
Age (thousands) (thousands) 

40 244 409 

41 73 30 

42 90 48 

43 76 39 

44 59 31 

45 201 260 

46 68 36 

47 47 25 

48 55 40 

49 30 17 

50 158 350 

51 36 21 

The U.S. Negro population for 1930 
shows a similar tendency of digit prefer- 
ence. These irregularities are errors in 
reporting. Therefore, before any analy- 
sis of these data is made, it is necessary 
to smooth or graduate the data so 
that these irregularities are removed. 
Various methods have been suggested 
for this purpose — graduation by New- 
ton's formula, osculatory interpolation, 
Sprague's multipliers, Greville multi- 
pliers, etc. The graduation methods as- 
sume that the totals for various age 
groups — 5 years or 10 — are accurate. 
The total error in each age may be 
broken down into two components — age 
misstatement and underenumeration. Be- 
fore we use the data it should be cor- 
rected for both kinds of errors. 

When inaccurate ages are reported, one 
can compute the sex ratios for the coun- 
try and for each of its parts or states. 
The purpose of computing the sex ratios 
is to state the degree to which people of 
one sex outnumber those of the other 
sex in a population. This is calculated as: 

Male population 

Sex ratio = ; X 100 

Female population 

The sex ratios need to be compared 
and evaluated. For a closed population, 
there would be about equal numbers of 
males and females. 

It is also possible to measure the age 



accuracy by means of an index. The 
index would enable us to see if age sta- 
tistics in one census are better than those 
in the other, the extent of urban-rural 
differentials in age accuracy, etc. Among 
the various indices are the Whipple's in- 
dex, 7 Myers' index, 8 Bachi's index, 9 and 
the United Nations method of computing 
an index. 10 (For methods of computa- 
tion, interested readers are referred to 
the sources.) 

Besides the problem of misstatement 
of age, there is the question of under- 
enumeration of children and underenu- 
meration of births and infant deaths. 
Among the various methods of measur- 
ing the undercount of children are the 
birth-survival comparison, the registra- 
tion-census comparison, and the post- 
censal quality surveys. 

The United Nations has been very 
active in trying to find ways to remove 
the deficiencies in the demographic data 
of the underdeveloped countries so that 
such data may be meaningfully used in 
order to study other phenomena. Even 
for those countries which have very in- 
complete data, it is now possible to esti- 
mate, fairly reasonably, their demo- 
graphic data. 

Outlook for the Future 

In the underdeveloped countries, com- 
municable diseases have been or are 
being removed because of economic de- 
velopment. Reduction in the death rates 
has been speedy, while the birth rates 

7 George C. Whipple, Vital Statistics — An 
Introduction to the Science of Demography, 
2nd ed. John Wiley and Sons, New York. 
1923. 

8 R. J. Myers, Errors and Bias in the Re- 
porting of Ages in Census Data. Actuarial 
Soc. of Amer. 41:411-15. 1940. 

9 R. Bachi, Measurement of the Tendency 
to Round Off Age Returns. Proc. Internat. 
Stat. Cong. Rome. 1953. 

10 U.N. Population Bulletin, No. 2. pp. 57-79. 
1952. 



LABOR FORCE AND ECONOMIC STRUCTURE OF AGRICULTURE 



29 



have remained at the high levels. These 
countries have populations that are pre- 
dominantly rural, illiterate, and too poor. 
The notion that fate determines the num- 
ber of children one is going to have still 
prevails. It is argued, therefore, that the 
possibility of a fertility decline is remote 
and in the meanwhile the growth of 
population will be alarming. 

However, recent developments in the 
field of fertility control in most of these 
countries are striking, and it may not be 
a surprise if many of these countries suc- 
ceed in reducing their fertility without 
extensive urbanization or modernization. 
Social change is taking firmer roots in 
most of these countries, and their age-old 
traditions and values are changing. The 
people in most countries not only want 
progress, but expect it. The new genera- 
tion is not ready to accept the traditional 
belief that fate determines the course of 
human events. At the same time, in these 
countries new forces are working to 
boost the fertility rates. Better medical 
facilities reduce the pregnancy wastage, 
promote sexual activity, and reduce wid- 
owhood. Therefore, where mortality con- 



ditions improve and the birth rate re- 
mains constant, it should be implied that 
the conception rate is declining. 

Such developments may have the cu- 
mulative effect of a fertility decline in 
the future. Many of these countries are 
experimenting with new techniques of 
communicating birth control information 
to couples and are taking bold steps to 
reduce fertility. A revolution in the atti- 
tudes of the people has already taken 
place, and this may lead to another revo- 
lution in the field of fertility control. 
National family planning boards are 
working with great vigor in some of 
these countries, and a breakthrough may 
not be impossible. They have the support 
of the government and private organiza- 
tions. Educated people clearly see the 
possibility of having babies by choice 
rather than by chance. Better living con- 
ditions can be achieved by reducing the 
birth rate. An economic breakthrough 
from the state of underdevelopment and 
unemployment to a developed economy 
can be obtained by curbing the birth rate. 
Economic history and economic logic 
point to this inescapable conclusion. 



Labor Force Composition and Economic Structure 

of the Agricultural Sector 



FOLKE 
Department of Agricultural 

To IDENTIFY, CHARACTERIZE, 
and measure the human element in the 
life and production process of the agri- 
cultural sector is more of a problem than 
is commonly realized. The search for 
well-defined statistical concepts merges 
with the quest for a deepening insight 
into the material and human conditions 
of the agricultural population and labor 
force. 

Although a multitude of research prob- 
lems are involved, this presentation will 



DOVRING 
Economics, University of Illinois 

concentrate on research necessary to 
characterize and measure a number of 
main subjects within the general area 
under review. Specifically, the follow- 
ing will be discussed: 

1. The labor force committed to agri- 
culture. 

2. The population dependent on agri- 
culture. 

3. The supply of labor to agriculture, 
and its relation to actual input. 



30 



ILLINOIS AGRICULTURAL ECONOMICS, DECEMBER, 1964 



4. The social stratification of the agri- 
cultural population and labor force. 

5. The degree of mobility among the 
agricultural population and labor 
force. 

Labor Force Committed to Agriculture 

Several problems of definition and fact 
finding are involved in the very concept 
of labor force in agriculture. They de- 
rive in various ways from the difficulty 
of establishing who is working and not 
working in an industry where most peo- 
ple are self-employed in one way or 
another, and from the more or less wide- 
spread occurrence of part-time employ- 
ment in more than one industry. For 
such and similar reasons, the data on 
employment in agriculture which we get 
from population censuses, agricultural 
censuses, and labor force surveys cannot 
always be accepted at face value; only 
seldom can they be interpreted without 
some analysis of the conceptual and fac- 
tual background, and sometimes their 
true significance can be laid bare only at 
the price of a considerable research 
effort. 

The agricultural labor force as a 
residual. In the older phases of eco- 
nomic development, those which we now 
term underdeveloped, agriculture was or 
is, in many cases, treated as a residual. 
Anyone, in rural areas, in agro-towns, or 
on the outskirts of cities, who has no 
other line of occupation, tends to be 
classified as working in agriculture, 
whether he is employed or not. All those 
who obtain some, even though brief and 
seasonal, employment in agriculture are 
then included with the agricultural labor 
force, even though they may do no more 
work in agriculture than some of those 
for whom agriculture is a secondary oc- 
cupation. In contrast with other indus- 
tries, underdeveloped agriculture can re- 
ject no one, "for where would the 



rejected go?" (Louise Howard). Al- 
most all current statistics on agricultural 
labor force include, silently and by defi- 
nition, large numbers of people who, if 
they lived in an urban area, would be 
classified as "unemployed" or "unspeci- 
fied." All of the following points must 
be read with this general difficulty in 
mind. 

As an example we may quote the Turk- 
ish census of population (1960, 1955, 
1950 . . .). In its classifications by indus- 
try or occupation, it includes a large re- 
sidual of "unspecified." Closer inspection 
reveals that the "unspecified" individuals 
are numerous in urban and suburban 
areas, but few in purely rural districts 
with no major town. On the surface, 
this might indicate that the "unspecified" 
were mainly urban unemployed or un- 
skilled workers. In reality, it is quite 
possible that the census takers were more 
ready to assign everyone, not otherwise 
classified, to agriculture in a rural area, 
but more often left open the category of 
occupation in areas where alternative jobs 
were available. The problem of assigning 
the "unspecified," to agriculture or other- 
wise, cannot therefore be settled merely 
on the basis of the information included 
in the census report, but also requires 
some of the background in the procedure 
for census taking and in the conditions 
for temporary farm and nonfarm em- 
ployment in various parts of the country. 

Sex distribution. In many countries, 
female labor is important in agriculture 
— in some even more so than male labor. 
In others, it is of small or negligible sig- 
nificance. In very few countries, how- 
ever, is the material significance of fe- 
male labor input anywhere near to being 
adequately reflected in statistics. 

In some areas, local custom frowns 
upon the idea of women doing the work 
that men can do. The reply to a census 
questionnaire then is that the women do 



LABOR FORCE AND ECONOMIC STRUCTURE OF AGRICULTURE 



31 



not work, even though they do so in fact. 
In Spain, for instance, the numbers of 
women in agriculture are in some prov- 
inces returned as zero, in some others as 
equal to a small number classified as 
widows and farm operators, in still others 
as widows plus the number of female 
farm wage workers. In a few provinces, 
substantial numbers of farm women are 
returned as working. The latter is in an 
area where women customarily enjoy 
more civic and economic freedom than 
elsewhere in the country. The low figures 
in other areas may simply reflect an un- 
willingness to admit that the women are 
working. The matter can be established 
only by acquaintance with actual work 
practices. In the Sicilian latifundia areas, 
for instance, farm families live in very 
big villages ("agro-towns"), and only the 
men move intermittently to the areas of 
extensive field crops. The same is prob- 
ably the case in some Spanish areas, but 
not in others. 

The opposite extreme is seen in Greece, 
where often women are out working in 
the fields while the men spend hours on 
end in the coffee house. The numbers of 
women returned in the census as working 
in Greek agriculture are much smaller 
than the numbers of men so returned, 
and the former numbers have changed 
suddenly and haphazardly from one cen- 
sus to another. Admittedly, such employ- 
ment figures are of little value. 

Other forms of employment may be 
questioned. In some of the Arab coun- 
tries,, it is customary for the fellah to 
take his wife with him when he works in 
the field. She may not at all be needed 
there; he merely asserts his right of own- 
ership. Is her participation in field work 
in this way a good reason for including 
her in the farm labor force ? 

Some agricultural chores, especially 
those with small animals and self-suffi- 
ciency horticulture, are not always 



thoughl of as gainful work. Often they 
merge with household chores. Farm 

wives who do these chores are in many 
countries not returned as working. In the 
United Kingdom, for instance, there is 
no well-established information on the 
contribution of farm wives to work in 
agriculture. The question is why these 
chores, near the home and for the house- 
hold, should be included in agricultural 
work any more than, say, milling rice or 
cooking preserves for the household is 
returned as employment in a food in- 
dustry. 

An extreme standpoint to the opposite 
effect occurs in Soviet literature on farm 
employment. Remarkably large numbers 
of women on the collective farms are 
returned as working on the "family 
plots." In some labor balance sheets, 
they are even shown as putting in full 
labor years in this activity, which then 
leads to the conclusion that labor pro- 
ductivity in such activities is exceedingly 
low. If these activities are instead treated 
as spare-time activities of housekeepers, 
a very different result emerges. 

All of these observations lead to one 
significant conclusion: current data on 
female labor force in agriculture cannot 
be trusted; they have to be tested by 
means of inquiries into the realities of 
the agricultural work processes. These 
include the spread of the labor load over 
the year (sometimes with peak seasons 
so loaded with work that both men and 
women have to be active) and specific fe- 
male chores in many countries and areas. 
Short of such information, it would 
often be safer to assume that the use of 
female labor in agriculture occurs in 
some characteristic proportion to the use 
of male labor. Especially when the labor 
surplus is large, it makes little sense to 
include all the farm women as active in 
agriculture. 

A different situation comes up when 



32 



ILLINOIS AGRICULTURAL ECONOMICS, DECEMBER, 1964 



the sex proportion is abnormal in the 
agricultural population. Such can be the 
case after a major war (e.g., Germany 
and the USSR after World War II, and 
France after World War I), but also in 
the early phase of an accelerated exodus 
from agriculture, as for instance in Italy 
in recent years. In such situations, there 
will be certain symptoms of increased 
female work participation — more female 
farm operators, more cases where the 
male labor force is obviously insufficient 
in rush seasons, etc. Even in such situa- 
tions, the census data are not of them- 
selves trustworthy. A different formula 
must be used to estimate total labor force 
than in the case of more normal sex pro- 
portions. In underdeveloped countries, 
generally, this point is not as significant 
as it is among countries well under way 
toward an industrial economy. 

Age distribution. The extent to 
which teenagers and very old persons are 
classified as working in agriculture is 
often not a reflection of their actual con- 
tribution to agricultural work. On the 
upper end of the scale, people past normal 
retirement age are more likely to retain 
token activity in agriculture than in other 
occupations; and some dually employed 
individuals go into semi-retirement by 
giving up their nonagricultural activities 
and continuing to work on a small farm. 
Sometimes institutional factors contrib- 
ute. In countries under Roman law (the 
French civil code and similar systems), 
the old farmer always remains head of 
the household. For instance, the French 
population census regularly returns an 
impressive number of men aged 80 years 
and over and active in agriculture. In 
this age bracket, agriculture still appears 
to have the majority position it lost in 
France a century ago. These men are 
mainly chefs de menage who formally re- 
tain the right of decision making. The 
recent decline in their number reflects a 



socio-psychological change in the attitude 
toward retirement, rather than any com- 
mensurate change in the number of men 
actually at work. 

The problems of farm work by chil- 
dren and teenagers are bigger and more 
widespread. Some labor input by young- 
sters is quite common, but how far does 
it justify inclusion in the labor force? 

Children under 15 years are returned 
as active in small numbers only in the 
developed countries, and even there they 
usually show up relatively more often 
among farm than nonfarm occupations. 
In underdeveloped countries, by contrast, 
child labor is widespread and the actual 
numbers returned depend on several fac- 
tors, among which are an arbitrarily 
chosen lower age limit for labor force 
participation, customary attitudes and 
taboos, and the degree of actual school 
attendance. Even here, data on labor 
force participation in agriculture are 
usually among the least reliable. The 
same techniques of testing may be tried 
as in the case of female labor. Usually 
the labor surplus still remains large even 
if all individuals under 15 years of age 
are treated as not belonging to the labor 
force. 

The age strata between 15 and 20 
years are often problematic in developed 
countries, but less in the underdeveloped 
ones, in which school attendance by farm 
youth past the age of 15 is rather ex- 
ceptional. 

Dual employment. Working in more 
than one occupation is frequent in coun- 
tries on an intermediary or high level of 
development and also very significant in 
many underdeveloped countries. For in- 
stance, transportation jobs occupy an im- 
pressive amount of manpower in south- 
ern Asia, with much of the activity in the 
agricultural slack seasons; some food 
processing industries in the Mediterra- 
nean countries operate in part with farm 



LABOR FORCE AND ECONOMIC STRUCTURE OF AGRICULTURE 



33 



laborers, etc. Even among the aboriginal 
peasantry in Peru, seasonal jobs in other 
areas are by no means uncommon. 

In both industrial and occupational 
classifications, dually-employed persons 
should be — and usually are — assigned 
one way or the other. One of the occu- 
pations is then supposed to be the "prin- 
cipal" one. In theory, the amount of non- 
agricultural, secondary employment might 
cancel out against the agricultural, sec- 
ondary employment of those whose main 
employment is in other activities. Data 
on "main" occupations could then approx- 
imate the total supply of labor in agricul- 
ture and in other industries (in the 
framework of an industrial classification 
— for agriculture, however, use of occu- 
pational classification will usually make 
slight difference). 

The criterion for assigning someone 
his "main occupation" is by no means 
self-evident. It is, for instance, not un- 
common that an individual spends more 
than half of his time in agriculture but 
derives more than half of his labor in- 
come from other work. Which of the 
two occupations becomes "principal" then 
is a matter of judgment. The issue is 
further complicated if the person also has 
income from capital — rent or interest 
charge on owned land tends to merge 
with labor income from agriculture, es- 
pecially in the underdeveloped situations 
("peasant rent"). Often the judgment 
about main and secondary occupation is 
left to the individual to answer, and his 
reply may reflect a value judgment rather 
than the economic or work situation. 

There are some specific situations 
which may invite a biased reply from 
census respondents. One of these is the 
season when the census is taken. A high 
season for agricultural work will attract 
more replies of employment in agricul- 
ture and a slack season vice versa, as is 
easily shown on the basis of labor force 



surveys taken several times a year. 
Another one is the degree of unemploy- 
ment in those industries in which farm 
workers find their second employment. 
In some countries, systems of unemploy- 
ment insurance and social security may 
affect the tendency of dually-employed 
persons to report one occupation rather 
than the other. Changes in these condi- 
tions may then cause variations in the 
reported numbers of farm workers, with- 
out any commensurate variation in the 
actual distribution of workers or work 
input between occupations and industries. 

Reconciliation of sources. Several of 
the problems of evaluating sources of 
data on employment in agriculture come 
into focus when data from different types 
of sources are juxtaposed and compared. 
The differences are sometimes exasperat- 
ingly large, even though usually more in 
level than in trend. The classical instance 
is that of reconciling a demographic 
census and a census of agriculture, but 
periodic labor force surveys also offer 
intricate problems of evaluation and 
interpretation. The best that has been 
done to date in reconciling a farm census 
with a demographic one is the "matched 
sample" that w T as drawn from the U.S. 
censuses of 1950. A similar exercise is 
in progress for the 1959-60 censuses. 
Even this matching is imperfect and re- 
gards only the "farm" population — a 
criterion of residence rather than occu- 
pation or industry — and does not en- 
compass agricultural workers who do not 
reside on farms. 

The agricultural census tends to in- 
clude all those who do any farm work, 
and since it does not enumerate other 
occupations, there is no check on the 
adequacy of the assignment to agricul- 
ture as a main occupation. The popula- 
tion census, on the other hand, tends to 
include less detail on agricultural occupa- 
tions, and for this detail we usually have 



34 



ILLINOIS AGRICULTURAL ECONOMICS, DECEMBER, 1964 



to consult the farm census. The latter, 
and followup sample surveys, are usually 
indispensable as a basis for balance sheets 
of total labor input in agriculture. These 
limitations on the various types of sources 
make it necessary to use them all. A re- 
search problem for the future is how 
common or "tie-in" questions should be 
formulated to allow the necessary recon- 
ciliation of data. "Tie-in" questions 
should not be formulated at once for all 
countries. It is likely that the adequate 
set of such questions will vary with the 
economic structure and the cultural con- 
ditions of different countries. 

Population Dependent on Agriculture 

This concept is of interest for compar- 
isons between per capita incomes in 
agriculture and in other sectors. If well 
defined, it may also be useful for projec- 
tions of future agricultural labor force, 
at least in countries where there is no 
significant backflow of people into agri- 
culture from other sectors. 

The concept is usually defined as "those 
engaged principally in agriculture, and 
their dependents." Several countries lack 
any good data relating to this concept — 
among them the United States, where the 
criterion of farm residence has received 
more attention than that of livelihood. 

The validity of the concept hinges first 
of all on the definition of labor engaged 
in agriculture (see the previous section). 
In addition, there is the problem of who 
is classified as a dependent. Young peo- 
ple who already have a source of income 
of their own, maybe outside agriculture, 
are often listed as "members of house- 
hold" with their parents, and thus become 
included among the "agricultural popula- 
tion." Such data may exaggerate the 
number of farm youth and the "genera- 
tion pressure" on farming opportunities. 
In France, for instance, the latest (1962) 
demographic census retains many young 



industrial workers as members of the 
farm household in which they continue 
to live. This tends to exaggerate the 
number of people attached to agriculture. 
At the same time it distorts the age- and 
sex-specific activity ratios to the point of 
making them useless for projection pur- 
poses. Rectification of such data can be 
attempted to the extent that they refer to 
age brackets in which the labor force 
participation rate is known to be high. 
For data on teenagers, among whom ac- 
tivity rates are lower, and maybe varying 
with the degree of school attendance, rec- 
tification can be tried only on the basis 
of direct information on these conditions 
among specific and localized populations. 
These problems of measurement are 
important in any country where dual em- 
ployment is widespread. As already men- 
tioned, this includes many underdevel- 
oped countries. In such cases it will be 
necessary also to ascertain whether the 
engagement of young people in nonagri- 
cultural pursuits, while still living in their 
parents' home, is normally a way to leave 
agriculture, or only a passing stage in a 
mainly agricultural career. 

Supply of Labor to Agriculture 

The mere enumeration of individuals 
working in agriculture, as their sole, prin- 
cipal, or secondary occupation, represents 
only a first step in measuring the amount 
of labor supplied to agriculture, and how 
it is matched against the normal labor 
requirements of the industry as specified 
by seasons and by kinds of work. 

The minimum elements required to 
evaluate the agricultural labor force into 
somewhat uniform "man-units" are in 
the distribution of workers by sex, age, 
and degree of participation in agricultural 
work. With due regard to the conditions 
of each country, attempts are often made 
to measure the "man-year equivalent" 
strength of the labor force by assigning 



LABOR FORCE AND ECONOMIC STRUCTURE OF AGRICULTURE 



35 



"weights" to categories other than adult, 
able-bodied men. 

Such weighting is always based upon 
the primary data on labor force and 
therefore suffers from the same weak- 
nesses associated with those data. Espe- 
cially the extent and real nature of fe- 
male participation in farm work requires 
considerable fact finding before the as- 
signing of specific weights to data on 
female workers has much meaning. 

In some of the agriculturally advanced 
countries, data on labor supply to agri- 
culture are refined by enumerating the 
amount of time which farm operators 
and their family members spend on non- 
farm work, or on work on other farms. 
The others are then assumed to be avail- 
able for work on their own farms, 
whether used or not. For wage workers, 
the reverse approach is usually applied: 
their actual input of work on farms is 
recorded, but their idle time is not. 
Strictly speaking, the two types of data 
are not commensurable. Also, wage 
workers with agriculture as their main 
occupation ought to account for time 
spent on nonfarm work, the balance be- 
ing available for supply to agriculture, 
whether used or not. 

In underdeveloped countries, such re- 
finements on the labor force concept are 
seldom very practical, so large is the 
farm labor surplus anyhow. Of more 
significance, in such cases, are specifica- 
tions as to health and nutritional condi- 
tion in addition to age and sex. 

The incidence of endemic sickness is 
obviously of crucial importance to the 
real strength of a farm labor force. The 
percentage of the work force suffering 
from debilitating chronic disease, such as 
hookworm or elephantiasis, or how fre- 
quently malaria strikes, is even more im- 
portant than age in years. Characteristic 
is a remark heard in Greece several years 
ago: previously when malaria was en- 



demic, a household of live adults always 
had one person sick, while the other four 
were fully employed. Eradication of the 
malaria introduced underemployment to 
the extent of 20 percent! The actual in- 
cidence of disease, and how much allow- 
ance should be made for it, can of course 
be found out only by emipirical observa- 
tions in each area. 

The nutritional level is even more puz- 
zling. Food intake conditions work per- 
formance — but also vice versa — in the 
underdeveloped situation. In some cases, 
the sequence of events is as follows: un- 
dernourished workers perform poorly, 
and their marginal product is small. Nat- 
urally, they are paid (or earn, as self- 
employed) a low income for their labor 
days. This permits only a very small food 
budget, resulting in undernourishment, 
poor work performance, and so on. How 
to break this vicious circle is one of the 
major development problems. For short- 
run analysis it is necessary, however, to 
account for the lower strength of under- 
fed workers, in order not to overstate the 
size of the labor force available, whether 
for expansion of agricultural production 
or for other development work such as 
road building, dam construction, or local 
industry. 

Social Stratification 

A customary and widely applied first 
classification of agricultural workers as- 
sumes three basic categories: (a) inde- 
pendent operators, (b) operators' family 
members, contributing work on the fam- 
ily holding, and (c) wage workers. There 
are, however, considerable difficulties in 
separating the first two categories from 
the third. 

Farm operators. This category may 
be uncertain as to its extent for two or 
three reasons: the operator may have so 
little independence from his landlord that 
he is in fact a kind of wage worker; he 



36 



ILLINOIS AGRICULTURAL ECONOMICS, DECEMBER, 1964 



may have so small a holding, and do so 
much wage work for other farmers, that 
wage work is his main occupation (or, at 
least, his main source of income) ; or he 
may have a retirement holding or other 
subsistence holding of such small conse- 
quence that he might not be included in 
the labor force at all. 

The limit between "operator" and 
"wage worker" is particularly critical as 
regards sharecroppers who supply noth- 
ing except their labor. Whether they are 
enumerated as workers on their own ac- 
count, or as employees, should in princi- 
ple depend on their degree of freedom to 
make managerial decisions. The whole 
matter is often one of judgment, and 
even within a given country there may be 
subtle distinctions giving way to one in- 
terpretation or the other. A useful prac- 
tice is to enumerate both concepts, as in 
the United States tabulation of "multiple- 
unit" operations in the southern states, or 
in the Portuguese enumeration of seare- 
iros. In several countries, the distinction 
is unclear, however, and data on "oper- 
ators" must be clarified by a rather full 
specification as to mode of tenure and 
type of contract. These specifications 
cannot in all cases be limited to standard 
descriptions; they must include the rele- 
vant economic data to characterize the 
socio-economic position of the various 
categories of farm operators, as well as 
the spread between larger and smaller 
farms within each of these categories. 
As a complement, hired workers also 
should be classified as croppers, cash 
wage workers, etc. 

The second case is that of the person 
with dual employment within agriculture 
— partly as operator of his own small 
holding and partly as worker for wages. 
This category offers the same pitfalls as 
dual employment in general, plus the pos- 
sibility of bias, which is usually in favor 
of the "independent" source of liveli- 



hood. The season of enumeration is par- 
ticularly likely to be of influence here, 
especially if the crops grown on the small 
holdings have a different calendar from 
that on which the larger farms usually 
employ hired hands. 

Close to this case is the traditional one, 
which has now disappeared in most coun- 
tries, of the wage worker whose wages in 
part consist of a small holding to culti- 
vate whenever the contractual work obli- 
gation for the landlord leaves time free. 
Certain countries in Latin America still 
have this category to a sizeable extent. 
The case is really one of a separate social 
class, different from both operators and 
ordinary wage workers. 

The retirement holding, or other small 
subsistence holding not associated with a 
labor contract, is more a problem for the 
estimation of total agricultural labor 
force than one of separating holders from 
wage workers. However, when all data 
on people who have such holdings are 
taken at face value, it may lead to an 
exaggerated idea of the relative place of 
independent operators in the country. 

Family members contributing work 
on the home farm. One of the difficul- 
ties in connection with this category is 
that once these family members do any 
work at all on the home farm it may look 
as if the home farm were their main 
place of work, which does not really fol- 
low. Especially when young sons also 
take wage work on other farms, their 
condition of being mainly farm wage 
workers may become obscured by the 
fact that they reside on their parents' 
farm. 

Wage workers. Apart from the prob- 
lems already mentioned, there is also the 
question of the social identity of the 
farm wage worker, and his prospects as 
a future farmer. The genuine rural pro- 
letariat should be distinguished from 
farm boys and girls working away from 



LABOR FORCE AND ECONOMIC STRUCTURE OF AGRICULTURE 



37 



home but having some future claim to an 
inheritance which may or may not estab- 
lish them as operators. The case is well 
described in some of the developed coun- 
tries. In the underdeveloped ones, a bet- 
ter description of this condition would 
shed more light on the potential social 
mobility of the farm wage worker class. 

Degree of Mobility 

The saying that farm people are irre- 
mediably sedentary and essentially im- 
mobile is an easily detected fallacy, but 
the real conditions under which people 
leave agriculture and take up a livelihood 
in other branches of the economy are 
elusive. 

The reasons for limited mobility among 
the agricultural population are only in 
part the same in underdeveloped as in 
developed countries. Supersession of in- 
vestments (both tangible and intangible), 
problems of financing and land market, 
and the specter of depopulation in rural 
areas are problems specific to the adjust- 
ment of agriculture in advanced phases 
of development, but they have little 
meaning in traditional peasant economies 
with their low level of investment and 
their generally crowded situation. 

The seasonal distribution of farm work 
is in many cases a deterrent, if some- 
times more in appearance than in reality, 
against movement of farm people away 
from their accustomed environment. 
Overcrowding discourages any tendency 
to economize with labor and encourages 
monoculture of basic staple foods. This 
tends to sharpen the seasonal peaks of 
the work year and thus creates the ap- 
pearance of a necessity to retain all avail- 
able hands on the farms. It would take 
some investigation to find out how genu- 
ine this difficulty is, or how readily the 
cropping pattern gets adjusted to sea- 
sonal labor shortages, either apparent or 
real. 



Whether age distribution is as much of 
a brake on mobility in underdeveloped 

countries as it is in the advanced ones 
(it is very relative even there) should 
also be investigated. When a population 
is younger, a larger proportion might 
seem to escape this limitation. However, 
the aging of the mind is not necessarily 
a direct expression of physical age, and 
the whole question may also depend on 
cultural factors. 

The tenure system can obviously affect 
labor mobility as well as the demographic 
trend. From several countries it is 
known, for instance, that owner-operators 
may have different attitudes both toward 
family size and toward mobility than 
either tenant farmers or landless workers. 
Also the specific inheritance laws which 
govern the transfer of farm land from 
one generation to the next tend to influ- 
ence such attitudes. There are no general 
rules on this, however, as the attitudes 
vary with the general cultural setting. 
Identifying a specific factor in the tenure 
system as affecting mobility must there- 
fore be done ad hoc in each case. 

Factors in the cidtural level are obvi- 
ously significant, although it is much less 
clear how they work out. Literacy, mar- 
ket experience, and nonfarm work expe- 
rience all affect the propensity to move 
or to sit tight, but again in ways which 
defy any too broad generalizations and 
require attentive study of the case at 
hand. 

Literacy in the formal sense is some- 
times less decisive than before, in the age 
of the village radio. Market experience 
should increase the responsiveness to in- 
centives, but it may also sharpen the 
tendency to minimize risk, or at least 
render it more apparent than before. 
Nonfarm work experience, or exposure 
to more modern ways of production, may 
be complicated by the manner in which 
that experience relates to traditional ex- 



38 



ILLINOIS AGRICULTURAL ECONOMICS, DECEMBER, 1964 



perience. From India, some telling ob- 
servations are at hand. The steel mills in 
southern Bihar had no impact on the 
ways of life and work in the surrounding 
countryside. The mills were too remote 
from traditional experience in the rather 
backward rural area where they are lo- 
cated, and a large part of the steel work- 
ers were recruited from other parts of 
India. Cottage industries of the hand- 
loom type also failed to spark any signifi- 
cant changes in the life of farming vil- 
lages; they were too much a part of 
traditional experience to unleash any 
dynamic changes. Light factory indus- 
tries in plants of moderate size, on the 
contrary, proved to have enough innova- 
tion in them to set the peasant mind mov- 
ing, and yet were not so enormously 
remote as to bypass it. 

A particular problem is connected with 
the occurrence of more or less pro- 
nounced cultural differences within a 
country. When an impoverished peasant 
population is set apart from the rest of 
the economy by barriers of language and 
cultural heritage, as with the Amerindians 
in the Andean countries, their mobility as 



well as their advancement is up against 
extraordinary odds. 

If at the same time this "dual econ- 
omy" is characterized by differential fer- 
tility, the problem of mobility may be 
very difficult indeed. In less accentuated 
form than in the Andean countries, many 
countries have elements or vestiges of 
discrimination on the basis of diverse or 
provincial culture. As long as all rural 
areas remain crowded, the problems of 
labor transfers within the country hardly 
come up. But an advanced industrial de- 
velopment quite normally means shifts of 
emphasis in economic activity as between 
areas in the country, calling for labor 
transfers, first into the more vigorously 
growing cities and at a later stage also 
between rural areas. The dynamic 
changes going on in Italy reveal more of 
the contrast between provincial mores 
than was realized in a more static situa- 
tion. The cultural problems of labor ad- 
justment cannot always be solved merely 
by accommodation, but even less can they 
be neglected — least of all in research 
designed to prepare the ground for eco- 
nomic development. 



Farm Management Research and Agricultural 

Development in India 



GEORGE MONTGOMERY 
Department of Economics, Kansas State University 



It IS A PRIVILEGE TO PARTICI- 
pate in this conference on identifying re- 
search tasks for agricultural develop- 
ment, and to consider our opportunities 
and responsibilities in assisting in the de- 
velopment of agricultural economics in 
the low-income countries. In the training 
of students from the new and emerging 
democracies, as well as in other phases of 
this program, we should be asking our- 
selves if we understand the goals and 



desires of these peoples, their culture and 
traditional background, and the problems 
they face in making the transition from 
a traditional to a commercial agriculture. 
It is easy to underestimate the extent 
and nature of the problems of transition 
of an agriculture that has been rather 
static for hundreds of years. To a sub- 
stantial degree, tradition, stability, and 
resistance to change have been the basis 
of security and continued existence. Fur- 



FARM MANAGEMENT RESEARCH AND DEVELOPMENT IN INDIA 



39 



thermore, it is difficult for us to compre- 
hend the magnitude of the number of 

cultivators or farmers in countries such 
as India, which has 62 million cultivators, 
and 50 million landless laborers in rural 
areas. Three-fourths of the population 
cannot communicate by printed words, 
and a majority of the 560,000 villages are 
without electricity, motorable roads, and 
a sanitary water supply. When we com- 
prehend the sincerity of these people to 
achieve change, we should be proud and 
thankful that we have the privilege of 
training leaders for these tasks. We 
should be profoundly concerned about 
giving them training that meets their 
needs, and not simply a stereotype pro- 
gram that has a standard content dictated 
by our advanced, specialized, highly com- 
mercial agriculture. 

To focus our discussion and to stimu- 
late questions on specific topics, I will 
discuss the following major aspects of 
identifying research tasks in farm man- 
agement in low income economies: 

(a) the persons responsible for identi- 
fying the research tasks, establish- 
ing priorities, and conducting the 
research, 

(b) the extent and nature of the re- 
search tasks in farm management, 
and 

(c) our responsibility as teachers in 
the land-grant universities for 
training the persons who will be 
identifying the research tasks in 
the low-income countries of Asia. 

My observations will deal essentially 
with India, for two reasons: (1) it was 
my privilege to work with 10 colleges in 
Andhra, Maharashtra, and Gujarat for 
four years, and (2) the economic prob- 
lems of 275 million rural persons attempt- 
ing to move out of a traditional agri- 
culture provides ample material for 
discussion. 



Responsibility for Identifying 

Research Tasks in Low-Income Countries 

It is important to indicate for whom 
the results of research are intended, and 
who should be responsible for identifying 
research tasks and establishing priorities 
in doing the research. 

Research on use of resources, input- 
output data, and other development data 
are essential for establishing national tar- 
gets, for other activities of planning com- 
missions, and for use by research insti- 
tutes of central governments. However, 
for the purpose of our discussion, I sug- 
gest we focus on the problems, limita- 
tions, and difficulties of individual culti- 
vators. There are several reasons for 
this. In India, as in most low-income 
countries, the majority of the population 
is in the rural areas. The productivity 
and consequently the level of living is 
low. The solution to problems of hunger 
and poverty will depend primarily on the 
ability of individual producers to move 
from a traditional self-sufficient agricul- 
ture to a productive agriculture capable 
of providing food for the population and 
also savings for economic development. 

Prior to independence and the intro- 
duction of the Community Development 
Program in India relatively little effort 
was directed to specific problems affecting 
the productivity of the millions of culti- 
vators. Even now there is a need for 
better communication and increased un- 
derstanding between those doing research 
and the persons to whom the results of 
research should be directed. 

The most important group in identify- 
ing and carrying out research tasks in 
farm management are the economists at 
the agricultural colleges and in the state 
departments of agriculture and animal 
husbandry. In India there are 15 state 
departments of agriculture. The usual 
staffing pattern has an agricultural econ- 
omist responsible for developing and di- 



40 



ILLINOIS AGRICULTURAL ECONOMICS, DECEMBER, 1964 



recting the research in farm management 
and other areas of agricultural economics. 
Also he is usually the professor of agri- 
cultural economics at the college of agri- 
culture. Usually there is at least one 
agricultural economist at each of the 
other agricultural colleges in the state. 

The extent to which all of these econ- 
omists participate in the planning and 
conducting of research varies from state 
to state. Research schemes may be devel- 
oped in cooperation with the Indian 
Council of Agricultural Research, and 
may receive allocation of research funds 
from the government of India. Teaching 
of farm management and agricultural 
economics is being introduced in the cur- 
riculum of the veterinary colleges. In 
these areas, organizational patterns and 
responsibilities have not been fully estab- 
lished and integrated between agriculture 
and animal husbandry. For example, 
Kansas State University has a farm man- 
agement training project at the College 
of Agriculture at Poona, which provides 
for nine months of special nondegree 
study for state officers having responsi- 
bilities in various areas of management 
throughout the state. In the states devel- 
oping agricultural universities, efforts 
will be directed to centering responsibility 
for both teaching and research in the 
Departments of Agricultural Economics. 

The research undertaken by these 
economists should be oriented primarily 
to the solution of specific problems which 
villagers face in attempting to increase 
output. Of course some research will be 
undertaken in cooperation with the cen- 
tral government. Some schemes may be 
financed by the central government or 
carried out essentially for central re- 
search agencies. The results of research 
will also be used for teaching purposes. 
The point for emphasis here is that the 
research worker should direct his efforts 
to removing the restrictions that limit 



increases in productivity. He has the 
responsibility of understanding the prob- 
lems of the cultivator and devoting his 
efforts to research tasks that will increase 
food production. 

It is difficult for U.S. economists to 
visualize the magnitude of some of the 
problems facing agricultural economists 
in the low-income countries. Many of 
the states in India have rural populations 
of 15 to 20 million persons. There may 
be three to six million independent culti- 
vators in the state. While the overall sys- 
tem of farming may be relatively uni- 
form, the type of crops and system of 
production vary significantly from region 
to region. There are problems of trans- 
portation, communication, and language 
that complicate the conducting of re- 
search. These place a premium on choice 
of the right priority and making the 
project simple and straightforward. 

The Tasks of Farm Management 

The major task of farm management 
research in India is to facilitate the use 
of improved knowledge — the application 
of technology to the problems of increas- 
ing the output of food. The basic prob- 
lem is assisting villagers to move from a 
traditional self-sufficient agriculture to a 
commercial agriculture producing for sale 
in a market. In considering the research 
tasks in a country such as India, there are 
a number of conditions and several ques- 
tions to be considered. For example, 
Professor Schultz in discussing the con- 
tent and relevance of 'western" econom- 
ics, asks: "Are the economic principles 
taught in the West really susceptible of 
general application ? Or are they culture- 
bound and relevant mainly to industrial, 
capitalistic countries P" 1 

Such questions merit much more study 

1 Theodore W. Schultz, Transforming Tradi- 
tional Agriculture. Studies in Comparative 
Economics 3. Yale University Press. 1963. 



FARM MANAGEMENT RESEARCH AND DEVELOPMENT IN INDIA 



41 



and concern, especially when providing 
technical assistance and training- young- 
economists for conducting research on 
management problems. In considering 
the application of technology in India one 
is impressed with the extensive range of 
food production situations. There are 
areas of plantation agriculture and types 
of agricultural production, such as sugar 
cane growing, which are highly mech- 
anized, capital-intensive and profit-ori- 
ented. These types of agriculture are 
concerned with essentially the same prob- 
lems of profit maximization, input-output 
ratios, and rates of substitution as char- 
acterize western commercial agriculture. 
However, if we are concerned about re- 
search as related to production of food 
crops such as rice, wheat, jowar, and 
bajri, the basic system of agriculture 
differs greatly from the western com- 
mercial system of production. 

The visiting specialist should keep the 
following differences constantly in mind 
when identifying and assigning priorities 
to research tasks in farm management: 

(a) Production plans and actions in 
low-income countries are determined pri- 
marily by tradition and custom, rather 
than by decision or choice among alter- 
natives. 

(b) Noneconomic factors — such as 
social custom, village status, education 
and communication — are more impor- 
tant in production activities than in the 
West. 

(c) Goals, desires, motivation, and re- 
sponse to incentives differ substantially 
from those which characterized decision 
makers in U.S. agriculture. 

(d) Knowledge about risks, and abil- 
ity and willingness to assume risks are 
extremely limited or nonexistent. Pro- 
duction for family food is primary. 

(e) The range within which the culti- 
vator can alter inputs, such as capital, 
fertilizer, and even improved knowledge, 



is limited. In many instances quantities 
are fixed or allocated to him. 

(f) Labor generally is abundant and 
underemployed, except at harvest, and 
cost is low relative to value or importance 
of the product. 

In addition to these situations of the 
individual cultivators, there are overall 
or general influences which the researcher 
must recognize. The use of technology, 
or application of improved knowledge, 
by the average villager is a relatively 
recent development — since Independence 
in 1947, and especially since the incep- 
tion of the Community Development 
Program several years later. Thus the 
research tasks generally center around 
the introduction of technology, rather 
than maximum use of given technology. 
Most of the application of technology 
falls in the stage of rapidly increasing 
returns. The priority research problems 
relate to introduction of practices, or ini- 
tiation of new techniques, and not to 
refinement concerning the exact rate of 
use or determining the point at which an 
additional unit gives zero return. Much 
U.S. management research deals with a 
narrow range of application centering on 
the area of maximum return. 

The availability, applicability and ade- 
quacy of data are other areas of differ- 
ences. Often substantial quantities of 
data are available, but these may have 
been collected for general purposes, or 
for descriptive studies. Frequently these 
are not applicable, or not adequate for 
research on a specific problem. Further, 
there are limitations on collecting data 
for specific purposes. Communication, 
transportation, lack of trained workers, 
and illiteracy are influencing factors. In 
situations where a substantial portion of 
the product is for home consumption, the 
records and the judgment of the respond- 
ent are easily biased. 

There is another area of substantial 



42 



ILLINOIS AGRICULTURAL ECONOMICS, DECEMBER, 1964 



difference which the farm management 
researcher may overlook. U.S. input- 
output studies, efficiency studies, and 
most studies relating to decision making, 
assume or take for granted a large range 
of influencing circumstances. These in- 
clude availability of a continuous market, 
adequate transportation, storage, grading, 
competitive prices, and common if not 
perfect knowledge of prices. In addition 
to the lack of some or all of these facili- 
tating services essential for commercial 
sale, the infra-structure of government 
may be inadequate or nonexistent in tra- 
ditional economies. This includes laws, 
regulations, official weights and measures, 
and concepts of equity and justice in the 
marketplace. 

These circumstances are major deter- 
minants in identifying research tasks and 
establishing priorities in traditional agri- 
culture. For example, the most impor- 
tant management decision in producing 
milk for sale may not center around the 
number of cows or buffalo to be kept, 
efficient feeding, or a cost and returns 
analysis. The primary decisions may re- 
late to having access to a market, how to 
provide transportation to the market, and 
the determination of the payment for 
transportation relative to the selling price 
of the milk. 

A specific example may illustrate the 
nature of such priority. The only source 
of cash income of a villager 25 miles 
from Poona was the milk above family 
consumption from three buffalo, for 
which he received 5 annas per seer. In 
Poona milk sold for 11 annas per seer. 
Solving the transportation problem has 
first priority in this situation. Only then 
can the researcher be concerned with milk 
as an alternative enterprise, or a supple- 
mental enterprise, involving studies of 
costs and returns and scale studies of the 
number of buffalo to be maintained. 

This suggests that to introduce tech- 



nology in such a situation the researcher 
needs to be an agricultural economist 
rather than a farm management specialist 
or production economist. It also suggests 
that, in solving problems of village pro- 
duction, the most useful tools are not the 
refined techniques developed to deal with 
problems of intensive production systems 
in which a high level of technology al- 
ready has been applied. 

In seeking to identify research tasks 
there is a tendency to assume that causes 
of low productivity in our agriculture are 
also causes of low productivity in low- 
income countries. One assumption is that 
low productivity is caused by inefficient 
use of resources. Neither observation 
nor research in India tends to verify this 
as a major cause of low income. 

Ray Cray, who was in the Punjab five 
or six years as the group leader for Ohio 
State University, stated that in his obser- 
vation Punjabi farmers made efficient 
use of the resources they had available. 
The Institute of Agriculture at Anand in 
Gujarat conducted studies in which plans 
were developed for farms of five acres. 
The director, M. D. Patel, used to chal- 
lenge an American farmer to improve 
the efficiency of the organization of those 
farm plans. These observations are sup- 
ported by the research of W. D. Hopper 
in Senapur District in northern India. 
Hopper concluded that "each man comes 
close to doing the best that he can with 
his knowledge and cultural background." 2 
Bauer and Yamey present evidence which 
also supports this conclusion. 3 These are 
indications that studies of efficient use of 
resources are not the first priority in 
seeking causes of low productivity in the 
village agriculture in India. 

2 W. David Hopper, Resource Allocation on 
a Sample of Indian Farms. Univ. Chicago, Of- 
fice Agr. Econ. Res. Paper 6104 (mimeo. 1961). 

3 Peter T. Bauer and Basil S. Yamey, The 
Economics of Underdeveloped Countries. 
Cambridge Econ. Handbook. 1957. 



FARM MANAGEMENT RESEARCH AND DEVELOPMENT IN INDIA 



43 



Studies of increasing inputs or of scale 

of operation likewise may not yield use- 
ful results for village cultivators. The 
majority of villagers are faced with rigid 
limitations on use of additional land, or 
even changing the pattern of fragmenta- 
tion. Many villagers have financial or 
credit limitations for digging a well or 
obtaining" an electric motor or engine for 
irrigation. Of course substantial addi- 
tions to inputs are being made in the 
form of fertilizer, improved seed, and 
better tools. But even here, the deciding 
factor usually is availability, and not the 
question of optimum rates of application. 
The cultivator may have limited choice 
in respect to amount or rate of increase 
in these inputs. 

Several groups of management tasks 
should be of special concern to agricul- 
tural economists when establishing priori- 
ties of research efforts. The traditional 
village agriculture of India emphasizes 
the production of rice, wheat, jowar, and 
bajri. The transition from traditional to 
commercial agriculture will give promi- 
nence to new types of production. These 
include eggs, milk for market, poultry for 
meat, fruits and vegetables for process- 
ing, and possibly fruit for export. This 
transformation already is occurring as 
evidenced by development of commercial 
poultry enterprises and the milk schemes 
around the major urban areas. 

These new types of production have 
special significance for the economy of 
India. Larger quantities of such foods 
are essential for improvement of Indian 
diets. These enterprises are labor-inten- 
sive, require relatively small areas of 
land, and have short production cycles. 
However they present massive hurdles to 
the villager who seeks to undertake pro- 
duction for a market. For example, mod- 
ern poultry production requires continu- 
ous accurate and complete adherence to 
specific requirements of nutrition, sani- 



tation, and disease control. Furthermore, 
a number of auxiliary facilities, such as 
transportation, markets, and i^vjl ingredi- 
ents must be available. 

These are complex requirements, even 
for industrious, intelligent villagers. Some 
of the requirements, such as transporta- 
tion and markets, are group or commu- 
nity requirements. An industrious, in- 
telligent villager who learned poultry 
production techniques by working two 
years with our poultry advisor, Dr. Earl 
Moore, took 400 chicks to his village 
25 miles from Hyderabad. Inability to 
meet the problems of disease, transpor- 
tation, and feed ingredients caused him 
to give up after rearing one batch of 
chicks. One of the major efforts of the 
agricultural economists at the agricultural 
colleges in India should be the develop- 
ment of information which will give the 
villager confidence and security in under- 
taking the production of milk, eggs, poul- 
try, meat, and fruit. 

Contribution to the expansion of these 
types of enterprises does not require the 
specialized efforts of the production econ- 
omists, nor the refined techniques appro- 
priate to the solution of "western" prob- 
lems of production. The need is for 
guidance from economists, who are con- 
cerned with the "total problem" of pro- 
viding credit, transportation, and mar- 
kets. We must be concerned with 
developing information to demonstrate 
"pitfalls" as well as potentials for return 
to effort. The researcher needs to be 
dedicated to encouraging individuals to 
cooperate in establishing institutions and 
services which are prerequisites for pro- 
ducing for a market. 

Responsibility for Training Identifiers 

When young economists from the low- 
income countries come to the United 
States for advance study, our concern 
should be to provide the needed training, 



44 



ILLINOIS AGRICULTURAL ECONOMICS, DECEMBER, 1964 



experience, motivation, and spirit of ded- 
ication to enable them to identify the 
important tasks and provide the needed 
information when they return to their 
home institutions. 

Reference has already been made to 
the relevance of "western" principles to 
the economics of low-income countries. 
Wharton raises a similar question with 
somewhat different emphasis. In discus- 
sing development research in Southeast 
Asia, he comments: "Another frequent 
criticism of the Southeast Asian agricul- 
tural economists is their blind imitation 
of the research projects which are tradi- 
tional in 'western countries' — a South- 
east Asian agricultural economist trained 
abroad — sees what makes for 'success' 
within the profession and automatically 
desires to emulate; professional recogni- 
tion and acceptance by his peers and his 
former teachers encourage him to adapt 
the same professional criteria of compe- 
tence." 4 

These observations have significant 
implications for those of us who have 
opportunity to contribute to the training 
of international students. Wharton con- 
cludes: "The unfortunate feature of 
these efforts lies in the failure of the re- 
searcher to take the techniques and ap- 
proaches and apply them imaginatively 
and creatively." As teachers and major 
professors of those who come to us, are 
we making the important contribution, if 
we do not stimulate originality and cre- 
ativity, and develop motivation to im- 
prove the welfare of villagers in the 
countries to which our international stu- 
dents return? 

The issues raised by Schultz and 
Wharton stimulate an appraisal of the 
training and especially the research ex- 
perience of the students from India. 

4 Clifton R. Wharton, Jr., Research on De- 
velopment in Southeast Asia. Jour. Farm Econ. 
45(5) :1165. 1963. 



In the eight years since Kansas State 
University entered into the agricultural 
education contract in India, I have par- 
ticipated in the training of 15 students 
from India. I worked with four of these 
students who had appointments as grad- 
uate assistants, in four instances I was a 
member of the Participant-Selection 
Committee in India, and in one case I 
was the guide in the preparation of a 
Ph.D. thesis submitted to an Indian Uni- 
versity. Two students are now on fellow- 
ships provided by their respective state 
governments, while the others are on 
their own financial resources. Four have 
returned with Ph.D. degrees, two have 
Ph.D. degrees from Indian universities, 
three are completing research for their 
Ph.D. theses, and the others have earned 
or are completing their master's degrees. 
Of those who are in India, two are in 
charge of developing programs in agri- 
cultural economics at new agricultural 
universities, and two are at central re- 
search institutes. The others are guiding 
programs of teaching and research at 
their respective colleges. 

Here are 14 young men and one young 
women who will provide leadership for 
research and teaching in agricultural eco- 
nomics in the 10 institutions with which 
Kansas State University has been coop- 
erating. It is recognized that a health 
situation prevented an effective program 
for one, and that the opportunity for in- 
fluence in another situation was quite 
limited. On the other hand three indi- 
viduals spent essentially three years in 
residence, and three or four of the cur- 
rent group will have spent three years 
before returning. 

How adequately have I fulfilled the 
opportunities available to me to influence 
the careers and contributions of these 
persons, whom we expect to be leaders, 
in the total area of teaching and research 



FARM MANAGEMENT RESEARCH AND DEVELOPMENT IN INDIA 



45 



in agricultural economics in their respec- 
tive states? How adequately has the uni- 
versity prepared them for leadership in 
their economy and culture? What effort 
has been or will be made to continue com- 
munication with them? 

If we apply Wharton's criteria of 
"imaginative and creative application 
of techniques" or his negative measure of 
"blind imitation of research projects tra- 
ditional in western countries," my contri- 
bution is not commendable. Probably the 
only consolation is that we "are doing 
about the same as other institutions." 

In my judgment the training programs 
mentioned have weaknesses both in the 
applied courses (those in agricultural 
economics) and in the research experi- 
ence gained from the thesis research. 

An indication of the research topics 
will illustrate the latter point. Among 
the topics on which Ph.D. theses have 
been completed or currently are in prog- 
ress are the following: "The Domestic 
Demand and Price Structure for Differ- 
ent Classes of Wheat in the United 
States," "Inventory and Feed Reserves 
of Farmers Having Beef Enterprises," 
and "Influence of Weather on Variability 
of Crop Yields in Kansas." One thesis 
for which data from India were available 
was "Use of Dynamic Programming for 
India Farms." The thesis submitted to 
an Indian University was a Cobb-Douglas 
production function study based on avail- 
able but inadequate data collected for 
other purposes from Indian farms. 

It is natural and perhaps convenient to 
include in the programs of international 
students the same courses in agricultural 
economics that are required of U.S. grad- 
uate students. Agricultural Policy is a 
course of this type. In the fall of 1962, 



I had Ph.D. students from India, Paki- 
stan, and Fgypt in Agricultural Policy. 

The typical course in Agricultural Pol- 
icy, oriented to price and income policy 
under conditions of surplus production, 
makes a small contribution to the training 
of students from India where the urgent 
problems center on increasing output of 
food. Appropriate areas of study might 
be seminars or assigned reading on the 
relation of government to agriculture, 
dealing with such topics as education, 
land policy, incentives, motivation, and 
the role of agriculture in economic de- 
velopment. 

If the state and central governments in 
low-income countries, where dollar ex- 
change is critical, send their officers to us 
for three years for a Ph.D. degree and 
provide $8,000 or $10,000 for their sup- 
port we have a profound responsibility 
to prepare them to be creative and imag- 
inative in identifying research tasks. This 
is much more difficult and requires more 
time and funds than developing imitators. 
Imitators may have superior command 
of modern techniques and advanced pro- 
cedures, but may lack the dedication to 
undertake research which does not re- 
quire the use of computers. 

Perhaps we should provide interna- 
tional students in farm management, es- 
pecially those from the low-income coun- 
tries, the lecture notes and papers of some 
of our early leaders such as Andrew 
Boss, George Pond, or G. F. Warren. 
Their research manuscripts might be an 
inspiration to those who return to serve 
in new colleges, where they have inade- 
quate equipment and resources but have 
the responsibilities of assisting millions 
of cultivators free themselves from the 
limitations of low productivity. 



46 



ILLINOIS AGRICULTURAL ECONOMICS, DECEMBER, 1964 



Farm Management Research and Agricultural 
Development in Latin America 

D. WOODS THOMAS 
Department of Agricultural Economics, Purdue University 



In my assignment the focus 

is to be on economic problems at the 
farm level as these relate to agricultural 
development in Latin America. 

The major aspects of this subject are 
so broad that they are clearly beyond the 
range of completely comprehensive treat- 
ment in a single paper, and of my first 
hand knowledge and experience. The 
discussion that follows is not offered as 
an all-encompassing and final judgment 
relative to the relationship between farm 
management research and agricultural 
development in Latin America. Rather, 
it is offered as a first attempt to identify 
sets of economic problems that (a) are 
common to major segments of Latin 
American agriculture (b) are both rele- 
vant and important to the more general 
problem of agricultural development and 
(c) are of such nature that farm man- 
agement research might contribute in an 
important way to their solutions. 

Given these limitations, I shall seek to 
satisfy the following specific objectives: 

1. Point out a few important charac- 
teristics of the Latin American pop- 
ulation of farm businesses and of 
the Latin American branch of the 
farm management profession. 

2. Identify a few common, important 
problem areas that empirical re- 
search by the farm management 
profession could help resolve by 
providing relevant information. 

3. Suggest an appropriate role that the 
U.S. farm management profession 
might play in the eventual solution 
of these and other relevant prob- 
lems of farm firms in Latin Amer- 
ican countries. 



Characteristics of Latin American 
Agriculture 

The single feature that best character- 
izes Latin American farm businesses is 
variability. This exists in the extreme in 
virtually every aspect of farm organiza- 
tion, operation, and management with 
which the farm management profession 
is or might be concerned. It is not dif- 
ficult to find farm businesses organized 
and operated on an economically rational 
basis. It is easier, unfortunately, to find 
farms that occupy the other extreme of 
the economic rationality spectrum. The 
range is great and there are farm units 
scattered over this range. It is probably 
true that the bulk of the population is 
situated more in the direction of the 
latter rather than the former extreme. 

This variability is evident in such im- 
portant characteristics as level of tech- 
nology, management, economic efficiency, 
technical efficiency, size of operation, 
combination of enterprises, returns to 
factors of production, and income. One 
finds farm units employing the best 
known farm technologies and high-level 
management with resources combined in 
a way that tends toward maximization of 
economic returns to the resources em- 
ployed. Other farm units employ the 
most primitive of technologies with little 
or no real management input, and operate 
in a frame of reference foreign to the 
notion of the profit motive — at least in 
the commercial agriculture sense. Farm 
units realizing high-level technical effi- 
ciency bounded by rational guides of 
economic efficiency are interspersed with 
those of extremely low technical effi- 
ciency bearing little or no relationship to 



FARM MANAGEMENT RESEARCH AND DEVELOPMENT IN LATIN AMERICA 



47 



the concept of economic efficiency. The 
much-publicized latifundio with its asso- 
ciated economic and social problems is no 
stranger to the less-publicized but equally 
problematic minifiindio. 

These classical prototypes are not 
strangers to farm units that defy classi- 
fication in this dichotomy. One finds 
farm businesses with enterprise combina- 
tions such that, given the relevant eco- 
nomic and technical variables, improving 
their organization would be difficult; 
others are characterized by enterprise 
combinations that appear to be totally 
unrelated to the dictates of economic 
optimality. Similar disparities in factor 
earnings and income are common. 

The fundamental problem, however, 
appears to be not so much with the wide 
range of situations that exist in Latin 
America as with the distribution of farm 
units and agricultural resources over 
these spectra. It is probably true that 
these distributions are skewed in such a 
manner that the aggregate effect is one 
of the agricultural resources being allo- 
cated and utilized in ways that greatly 
reduce their actual relative to their poten- 
tial contribution to the economic growth 
and welfare of these societies. 

Another strikingly common feature of 
Latin American agriculture is the dearth 
of reliable economic information upon 
which managers might base decisions con- 
cerning the organization and operation 
of the farm business. Among the rea- 
sons for this are (a) the fact that no 
Latin American country has made in- 
vestments in human resources, institu- 
tions, and systematic economic research 
of the form and magnitude required to 
produce certain kinds of needed informa- 
tion, (b) the inadequate and inefficient 
communication of economic information 
resulting from technological and organi- 
zational problems in public communica- 
tion media, and (c) the high degree of 



imperfection that characterizes both fac- 
tor and product markets ill many of these 
economies. Thus there are serious prob 
lems of imperfect knowledge, risk, and 
uncertainty with respect to significant 
economic variables such as factor and 
product prices. 

Perhaps the most important phenom- 
enon that characterizes much of Latin 
American agriculture is the increased 
economic, social and political pressure 
for change. This pressure has many 
sources and takes many forms but cul- 
minates in irrepressible forces for shifts 
in the allocation and utilization of agri- 
cultural resources. 

The shifts will have an important ag- 
gregate impact on the economic, social, 
and political future of these nations. 
But we must not forget that the aggre- 
gate effects will be dictated, in large part, 
by the changes that take place at the level 
of the primary producing unit — in this 
case, the farm. The proportion of these 
changes that will result in sustained agri- 
cultural growth and in agriculture mak- 
ing meaningful contributions to general 
development of these economies will de- 
pend in some way on the kind and quan- 
tity of relevant economic knowledge pro- 
vided through systematic research. Some 
of the most significant and useful eco- 
nomic information will be that pertaining 
to decisions at the farm level. 

Potentials of the Farm Management 
Profession 

In examining our potential to provide 
needed economic information through 
systematic research, let us first consider 
the Latin American branch of our pro- 
fession. There are well-trained, highly- 
competent Latin American agricultural 
economists. There are a. few centers 
where the micro-economic problems of 
agriculture are being studied in a sys- 
tematic manner. However, when one 



48 



ILLINOIS AGRICULTURAL ECONOMICS, DECEMBER, 1964 



compares the numbers of agricultural 
economists actively engaged in compre- 
hensive, micro-problem research with the 
magnitude of existing problems and the 
need for information, the conclusion is 
that at present the Latin American 
branch of our profession lacks the man- 
power and ancillary research resources 
required to shed much light in the eco- 
nomic darkness that shrouds the farm 
businesses of that area. There may well 
be more professional talent assembled in 
this room today than exists in all the 
agricultural economics research institu- 
tions in any single Latin American 
country, and possibly all of Latin 
America. 

Even under ideal working conditions, 
how great a contribution can a group of 
this size be expected to make to the solu- 
tion of farm management problems of 
these nations? The sheer problem of 
numbers of trained farm management 
research workers is the reality that faces 
the Latin American branch of the pro- 
fession. This must be faced squarely in 
our discussions today. 

In assessing the potential of the farm 
management profession in Latin Amer- 
ica, the "numbers problem" tends to 
overshadow most other factors affecting 
the potential. There are, however, several 
other variables that should be taken into 
account. One of these is the pervasive 
problem of multiple-employment. It is 
common practice for many agricultural 
scientists in Latin America to hold two 
or more jobs at the same time. To the 
extent that this is true of agricultural 
economists and that certain of these 
endeavors are not research oriented, the 
effective supply of human resources de- 
voting their time to the discovery of new 
knowledge is reduced. In the universi- 
ties there is a strong element either of 
part-time employment devoted largely to 
the teaching function, or for excessively 



heavy teaching loads that permit little 
time for comprehensive research en- 
deavors. Also, institutional arrange- 
ments and philosophical values tend to 
be such that research workers in the 
agricultural sciences are unduly insulated 
from the real problems of agriculture. 

These factors, coupled with data prob- 
lems, the lack of a solid historical tra- 
dition in research, and the lack of finan- 
cial support for research further limit 
the potential of the farm management 
profession in Latin America. On the 
positive side, one must acknowledge the 
complete dedication of the small group 
that constitutes the hard core of the pro- 
fession, the creation of a professional so- 
ciety, the numbers of young professionals 
currently being trained in graduate 
schools abroad, the development of 
formal graduate study in a few Latin 
institutions, expansion in problem- 
oriented research, and increasing aware- 
ness of the responsibilities and oppor- 
tunities that face this profession in Latin 
America. These are good and positive 
signs. On balance, however, one cannot 
be both realistic and highly optimistic 
about the potential magnitude of the 
short-run contributions of the Latin 
American farm management profession 
to the solution of agricultural problems 
of the region. 

Now, what of the U.S. branch of the 
farm management profession? Certainly 
it could make substantive contributions 
to the solution of farm management 
problems in Latin America — both di- 
rectly and indirectly. It is also true that 
to the present we have made precious 
few contributions in this arena. There 
are, of course, good reasons why this is 
so, but at the same time we must recog- 
nize that Latin American agriculture has 
a multitude of farm management prob- 
lems to which we might apply our talents 
and energies to good advantage. 



FARM MANAGEMENT RESEARCH AND DEVELOPMENT IN LATIN AMERICA 



49 



Four Broad Problem Areas 

There are many kinds of real prob- 
lems in Latin American agriculture that 
might constitute meaningful and intri- 
guing research tasks for members of the 
farm management profession and in 
which systematic study could make sub- 
stantive contributions to agricultural de- 
velopment. The possibilities are virtually 
limitless. Generally speaking, we are 
dealing with a group of agricultural 
economies containing farm businesses 
beset with every kind of economic prob- 
lem with which our profession has con- 
cerned itself and, perhaps, some to which 
we have given little attention. Too, these 
economic problems have been subject to 
very little systematic investigation. 

To attempt to list individual research 
problems would be an endless task. How- 
ever, it does seem possible to identify a 
few major types of problems that exist, 
in some form, in important magnitude in 
many Latin American countries. These 
broad categories of problems should 
provide us with useful insights into the 
potential contributions of farm manage- 
ment research to agricultural develop- 
ment in Latin America. 

Technology of agricultural produc- 
tion. A major part of agricultural 
output in Latin America is being pro- 
duced with production methods techno- 
logically inferior to those currently avail- 
able and, more importantly, those that 
could be discovered through expanded 
research in the agricultural production 
sciences. 

Most Latin American countries have 
not made the kinds of investments needed 
to produce a body of scientific knowledge 
upon which rapid and sustained agricul- 
tural development can be based. It is 
particularly significant, for our purposes, 
that a huge share of such investments 
have been in the technical agricultural 



sciences to the virtual exclusion of re- 
search in the economic sciences of agri- 
culture. The agricultural sectors of these 
economies are faced with limited infor- 
mation about fundamental production re- 
lationships and even more restricted 
information about the economic feasibil- 
ity of alternative new technologies, levels 
of application of both old and new pro- 
ductive services, combinations of pro- 
ductive services, systems of organization 
and management, etc. 

The importance of economic research 
in this broad problem area is supported 
by two major factors that appear to be 
acceptable at face value. One is that 
major improvement in the farm sectors 
of these economies will necessitate the 
rather wide-scale introduction of new 
technical systems of production. A sec- 
ond is that such widespread introduction 
of new technology at the farm level, 
while dependent upon many variables, is 
bound to be retarded until such time as 
the economic feasibility of these pro- 
duction techniques has been clearly dem- 
onstrated. Such demonstration can come 
about, on its own, through trial and error 
practices of the more imaginative and 
venturesome farm operators. This is a 
perfectly normal and natural procedure. 
By the same token it is an unnecessarily 
slow and costly procedure. 

If farm management research has any- 
thing to offer, as I most certainly think 
it does, one of its more important con- 
tributions lies in the systematic study and 
evaluation of the economic consequences 
of adopting existing production tech- 
niques as well as techniques that are 
being or will be discovered. Such sys- 
tematic economic analyses, and subse- 
quent dissemination of the findings of 
these studies to the managers of farm 
businesses, could materially reduce the 
time period required to bring about eco- 
nomically desirable shifts in the produc- 



50 



ILLINOIS AGRICULTURAL ECONOMICS, DECEMBER, 1964 



tion functions of large numbers of farm 
units in Latin America. 

Enterprise combination. A second 
broad problem that seems to be indigen- 
ous to farm units in many parts of Latin 
America consists of the economic ques- 
tions associated with the enterprise com- 
bination phenomenon. Overt manifesta- 
tions of this problem appear in the form 
of low returns to productive services, 
unemployment and underemployment of 
labor resources, land utilization patterns, 
price and income variability, gluts and 
famines in market channels, and the like. 
The presence of such problems in im- 
portant magnitude in economies moving 
or attempting to move toward higher and 
different levels of economic activity is 
completely understandable. They arise 
out of a number of forces. Among these 
are shifts and changes in market demand 
for agricultural products; farm units 
moving from the market-insulated, sub- 
sistence sector to the commercial sector; 
land redistribution and colonization 
projects; population growth; demog- 
raphic changes; improved transportation 
facilities; and technological advance. 

Regardless of the basic forces giving 
rise to this problem, several things seem 
reasonably clear. First, substantive ad- 
justments in the location of agricultural 
production and in the "product mix" of 
farm firms will take place in many parts 
of Latin America in the future. Second, 
there are major economic gains to be 
had through improved enterprise com- 
bination on many of the farm units con- 
stituting Latin American agriculture. 
Third, with increased rates of general 
economic development, problems of en- 
terprise combination will likewise in- 
crease. Fourth, the state of economic 
knowledge among managers of farm 
units and in the agricultural economics 
profession is such that useful guidelines 
to essential adjustments in enterprise 
combination simply do not exist. Finally, 



and of paramount importance to our 
discussion here today, the farm manage- 
ment profession could make highly sig- 
nificant contributions to the solution of 
such problems on Latin American farms. 
The experience and competence of 
this profession in "putting together" a 
farm business to get the greatest mileage 
out of a farmer's bundle of resources, 
and in adjusting farm business organiza- 
tions to changing conditions, would have 
a tremendously high payoff if appropri- 
ately applied to Latin American agricul- 
ture. 

Size of farm business. Economic 
problems associated with farm enterprise 
and farm business size abound in Latin 
America. Such problems constitute a 
third major area in which the farm man- 
agement profession could make mean- 
ingful contributions to agricultural de- 
velopment. This set of problems cuts 
across the spectrum from the small, 
subsistence, noncommercial farm opera- 
tion to the huge, highly commercial, 
well-managed farm unit. There are a 
number of highly significant questions 
concerning efficiency of resource use, 
returns to factors of production, and in- 
come levels as related to farm and enter- 
prise size. These problems tend to be 
associated, in part, with historical pat- 
terns of land acquisition and land hold- 
ing. They are complicated by methods of 
transferring land and other agricultural 
resources from one generation to the 
next, land tenure arrangements, taxing 
structure, product and factor market 
structure as well as the economic-social- 
political phenomena of agrarian reform. 

The future will likely bring major 
changes in such economically important 
things as size of ownership and oper- 
ating unit. Given the current state of 
economic knowledge about size and 
scale relationships in agricultural pro- 
duction, most of these changes, whether 
"autonomous" or "induced," will be 



FARM MANAGEMENT RESEARCH AND DEVELOPMENT IN LATIN AMERICA 



51 



made ill virtual ignorance of their prob- 
able micro and macro economic conse- 
quences. Here, it would seem, systematic 
research by the farm management 
worker could provide valuable insights 
and guidelines for enterprise and busi- 
ness adjustments that would be con- 
sistent with criteria of efficient resource 
utilization. 

Managerial and decision processes. 
One more problem area that would seem 
to have potential for highly useful and 
intriguing research by the farm manage- 
ment profession concerns the managerial 
function and the decision processes of 
Latin American farm owners and op- 
erators. 

Important insights into ways to hasten 
the process of agricultural development 
could be obtained through systematic in- 
quiry into the structure and nature of 
the managerial processes employed in the 
several strata of farm units. For ex- 
ample, virtually nothing is known about 
the nature of the goals and values that 
motivate the managers of Latin Ameri- 
can farm businesses; the true seat of 
managerial and supervisory decisions is, 
at times, unclear; the relationship be- 
tween information availability and needs 
in decision-making is a matter of specu- 
lation; strategies employed by managers 
in handling situations of risk and un- 
certainty are unknown. Knowledge of 
these and related phenomena would be 
of immense value not only in under- 
standing the behavior of agriculture in 
these areas but also in developing educa- 
tional and action programs designed to 
bring about change and development. 

I have indicated four broad problem 
areas in Latin American agriculture that 
offer productive opportunities for farm 
management research. There are an in- 
finite number of "pieces of research" 
within each of these areas. For prac- 
tical purposes, each may be considered 



virgin territory, untouched by the re- 
search implements of the farm manage 
ment profession. There are undoubtedly 

other problem areas of importance that 
have likewise escaped exposure to objec- 
tive and systematic investigation. There 

is no dearth of research opportunities 
with potentially high payoffs. The prob- 
lem faced by our profession is not one 
of finding significant problems to study 
but rather one of deciding which of the 
many important problems to tackle first. 

Allocation of Research Resources 

In considering the relationship of 
farm management research to agricul- 
tural development in areas such as Latin 
America another important issue needs 
to be raised. This deals with our state 
of knowledge about the agricultural de- 
velopment process and the allocation of 
scarce research resources between the 
study of this process, per se, and other 
perhaps less comprehensive lines of in- 
quiry. It is safe to say that the nature 
of this process is not completely under- 
stood and that research resources allo- 
cated to its study will indeed be invested 
profitably. 

It appears equally safe to assert that 
regardless of the true and complete na- 
ture of this process, a necessary although 
not sufficient condition to progress in 
agriculture is a preponderance of right 
decisions and actions by the managers 
of the primary producing units in the 
agricultural sector. Chances for improve- 
ment in the "batting average" of right 
decisions by managers of these entities 
can be bettered through the systematic 
investigation of real farm management 
problems and the subsequent dissemina- 
tion of the rindings of these studies to 
decision-makers. It follows that some 
rather substantial portion of the aggre- 
gate research resources devoted to agri- 
cultural development problems in Latin 



52 



ILLINOIS AGRICULTURAL ECONOMICS, DECEMBER, 1964 



America legitimately can be devoted to 
these ends. This is not the most glamor- 
ous of the alternative lines of inquiry. 
In Latin America, it is difficult work that 
will tax the best that our profession has 
to offer. At the same time, it is highly 
satisfying and rewarding work that is 
basic to increased rates of agricultural 
development in these areas. 

At this point let us consider the appro- 
priate role of the U.S. branch of the 
farm management profession in solving 
farm problems in Latin America. The 
magnitude of the farm management re- 
search tasks to be done clearly indicates 
the impracticability of the U.S. farm 
management profession assuming respon- 
sibility for the direct solution of these 
problems in their entirety. The profes- 
sional people and other resources allo- 
cated to these tasks will be so limited 
that their direct efforts will make but a 
small dent in the morass of existing 
problems. 

An alternative role, and a much more 
realistic one, is for the U.S. farm man- 
agement profession to assume true lead- 
ership and major responsibility for 
assistance in the development of the 
personnel, research programs, and edu- 
cational activities of indigenous Latin 
American institutions to the point where 
this branch of our profession can ade- 
quately cope with and solve, on a sus- 
tained basis, the farm management prob- 
lems of their economy. 

To play such a role successfully, the 
U.S. farm management profession will 
need to alter its current program in a 
number of ways. One of the more im- 
portant of these alterations will be the 
development of substantive research pro- 
grams on the real problems of Latin 
American agriculture. An important ef- 
fect of such research programs will be a 
marked expansion of the range of prob- 
lems over which our profession can 
speak with authority. Professional com- 



petence in both conceptual and empirical 
matters will grow. Such research pro- 
grams, if judiciously conceived and 
conducted, can make important, direct 
contributions to the solution of existing 
problems. However, if we are to make 
the most meaningful and lasting contri- 
bution to Latin American agriculture, 
these research programs must be con- 
ceived and organized in such a way that 
their primary product be a major con- 
tribution to the development of the farm 
management profession "south of the 
Rio Grande." Direct contributions to 
problem solution, and expansion of our 
professional knowledge and competence, 
will be important but of a lower order of 
significance than this "primary product." 

Organizing Our Efforts 

This leaves open the important prag- 
matic question of how our branch of the 
profession might organize itself to play 
such a role most effectively. Although 
time does not permit tackling this ques- 
tion in depth, some brief comments might 
be helpful. 

First, it appears obvious that we have 
not yet discovered the most appropriate 
way to organize our efforts toward this 
and parallel ends in the other agricultural 
sciences. A number of approaches have 
been or are being tried. We need to 
carefully appraise these and create 
imaginative new or modified approaches 
that will permit more rapid progress 
toward the specified end. 

Second, regardless of the operational 
format eventually found to be most use- 
ful, a substantial number of U.S. farm 
management workers will need to become 
involved in and committed to long-run, 
active research programs in Latin Amer- 
ica. Such involvement, if it is to be 
effective and meaningful, will necessitate 
major "investments" on the part of those 
members of our profession who accept 
this challenge. These investments will 



INTERNATIONAL TRADE MODELS 



53 



take such forms as the time and effort 
to gain competence in the appropriate 
languages, to become "steeped" in the 
characteristics of the environment in 
which farm management problems arise, 
to learn how to cope with the mechanics 
of research in situations quite different 
than those to which most of us have 
grown accustomed, and to modify, as 
needed, our conceptual research models 
so that they fit the real problems of con- 
cern. 

Third, it is quite probable that the ef- 
forts of the farm management profession 
in this sphere can be most effective only 
if integrated w T ith similar efforts by our 
colleagues in other fields of agricultural 
economics, the physical and biological 
sciences of agriculture and, perhaps, the 
parent sciences as well. 

Fourth, in addition to the commit- 
ments by individual agricultural sci- 



entists, the U.S. institutions that they 
represent will need to commit themselves, 

without reservation, to this work and 
make whatever organizational and ad- 
ministrative changes necessary to support 
fully the activities of the professional 
worker. It is obvious that the nature of 
this task is such that both individual and 
institutional commitments must be of the 
long-run variety. 

In closing let me say that the issues 
being discussed here today constitute a 
major challenge to our profession. This 
could very well be the major challenge 
facing this generation of farm manage- 
ment workers. The problems involved in 
meeting this challenge are many. But 
as our profession has identified, accepted, 
and successfully met other important and 
difficult challenges in the past, I am cer- 
tain that it will find a way to do likewise 
in this situation. 



International Trade Models 



T. TAKAYAMA 
Department of Agricultural 

The impact and implica- 

tions of international trade on the eco- 
nomic development of a country or group 
of countries has concerned economists 
over a long period of time. This concern 
takes on added significance today since 
the tendency of some groups of countries 
toward some form of economic integra- 
tion is very evident. This tendency is 
strongest in Western Europe, although 
a start toward regional integration has 
been made in Central and Latin America 
and the Arab nations. 

What information do these countries, 
and others who are tending toward some 
form of economic integration, have re- 
garding the impact of such integration in 
each country on (1) the accumulation of 
capital in new forms, (2) the technical 



and G. G. JUDGE 
Economics, University of Illinois 

conditions of production, (3) the profile 
of consumption and (4) the levels of 
imports and exports? In most cases 
information concerning probable im- 
pacts is scanty, and the direction and 
magnitude of the consequences of certain 
changes under which trade takes place 
is uncertain. However, knowledge of 
this nature is a prerequisite to framing 
intelligent courses of action to make the 
role of trade effective in economic de- 
velopment. 

Given the necessity of information for 
decision-making, the question arises as to 
the strategy for capturing this knowl- 
edge. Within this context, economic 
models provide one basis for drawing 
certain conclusions regarding the out- 
come of the interaction of economic 



54 



ILLINOIS AGRICULTURAL ECONOMICS, DECEMBER, 1964 



variables as well as providing a frame- 
work under which empirical analyses 
may proceed. Since the time Ricardo 
outlined a simple theory to explain the 
actual patterns of international trade and 
proclaim its benefits to those participat- 
ing, the construction of models of world 
production and trade has been a stimu- 
lating challenge to economists. To a large 
extent the classical models were limited 
to a two-country, two-commodity, two- 
factors-of-production world. 

Recognizing the inadequacy of the 
classical analysis with its bilateral com- 
parisons, Graham [6]* constructed gen- 
eral equilibrium models of world pro- 
duction and trade with many countries 
and many commodities which he solved 
by trial and error to find the points of 
competitive equilibrium. The works of 
Yntema [22], Mosak [12], Ohlin [13], 
and Samuelson [14] are also examples 
of other contributions to the development 
of general formulations for international 
economics. McKenzie [11] used the ac- 
tivity analysis model of production and 
allocation developed by Koopmans [8], 
Dantzig [3], and others to present proof 
of the efficiency of competition and free 
trade in Graham's formulation and to 
indicate the applicability of activity 
analysis to the theory of international 
trade. In a recent article Uzawa [20] 
uses a general equilibrium trade model 
to derive certain conclusions regarding 
the effect of international trade on the 
prices of factors of production. 

Parallel to the development of general 
models in international economics there 
have also been several contributions in 
the area of interregional trade. Because 
of the large degree of similarity between 
regional and international economics the 
works of Enke [4], Samuelson [15], 
Koopmans [7], Beckmann and Mar- 

* This number and similar numbers in 
brackets refer to "Literature Cited" on pages 
62 and 63. 



schak [2], Lefeber [10], and Stevens 
[17] are particularly relevant. 

Given the contributions of the classical 
and modern precursors the modest pur- 
pose of this paper is to suggest two alter- 
native short- run equilibrium models which 
may be used as a basis for analyzing 
world production and trade. Each model 
contains the interrelations among many 
countries with competitive economies. 

The first model will be concerned with 
an activity analysis specification of inter- 
national trade, with the modification that 
the demands for final commodities in 
each of the countries are represented 
by price-dependent linear functions [18]. 
A world "welfare function" is defined, 
and a programming formulation is speci- 
fied that can be used to maximize the 
"world welfare function" subject to the 
restrictions of the model. 

In the second model demands and sup- 
plies of all commodities in each of the 
countries are represented as linear func- 
tions of price. The Samuelson [15] con- 
cept of "net social payoff" is then used 
to specify a "world welfare function" 
and a quadratic programming model is 
specified. 

For each of the models a computa- 
tional algorithm is presented by which 
one can obtain directly and efficiently the 
optimum competitive price and alloca- 
tion solutions. Examples are given to 
reflect the structure of the programming 
problems. The paper concludes with 
some remarks concerning the potential 
research applications of these models in 
gauging the economic impacts of alterna- 
tive trade or integration systems. 

Model I — The Activity Analysis 
General Equilibrium Model 

In developing the first model the 
following definitions, notation, and re- 
strictive and expository assumptions 
are employed: The world economy can 



INTERNATIONAL TRADE MODELS 



55 



be partitioned into I countries. An in- 
dividual country is designated by i, j 

with i. J = l, 2, . . . , I. Competitive 
behavior is stipulated for all participat- 
ing countries and all commodities are 
traded in competitive markets. The 
commodity space for each country is 
composed of p commodities with ji = l, 
2, . . . , N. Let v be a subset of this 
commodity space where *> = K+1, K + 
2 \ 

These commodities are partitioned as 
follows: k final commodities where k = 
1, 2, . . . , K; 1 intermediate commod- 
ities, where 1 = K + 1, K + 2, . . . , L; m 
mobile primary commodities where m = 
L + l, L + 2, . . . , M ; n immobile pri- 
mary commodities where n = M + l, M 
+ 2, . . . , N. All commodities except 
immobile primary commodities are as- 
sumed to be transportable between 
countries. Thus each country can sup- 
pis- her requirements of the mobile 
commodities from domestic sources and 
from other countries. The native avail- 
ability of intermediate and primary 
commodities (amount available before 
importing) in a country is assumed 
known and limited. Let these quan- 
tities be denoted by S M = (si M ) >0 where 
/i = K + l, K + 2, . . . , X. Let the net 
availability of commodity p. in the ith 
country (the amount remaining after 
exports and imports) be denoted by E M 
= (ert>0 where p = K+l. K + 2, 
X. 

Within each country production is 
assumed technologically uniform. The 
set of producing processes may differ 
among countries. Inputs and outputs 
of every production process in each 
country are assumed in constant pro- 
portion for all levels at which the proc- 
ess is operated. Let # M denote the 
producing and flow processes available 
for the /xth commodity ; fi = 1 , 2, . . . , M . 

Let ai* 9 " denote the input required or 
the /ith output emerging per unit of 



process 0* in the ith country. Let X*" 
= ( x i/") > () denote the level of pro* i 

M that is to flow from country i 
to country j; /i = L 2, . . . , M. 
Let Y k = (yi k ) denote the quantity of 
the kth product consumed in the ith 
country. 

It is assumed that transportation is 
needed for the international movement 
of commodities and the transportation 
costs are known for each commodity 
and each pair of countries. Further it 
is assumed that commodities within 
each country do not need transportation 
or that the intracountry movement is 
carried on at a zero transport cost. Let 

T* J = (ti/ a ) > denote the unit trans- 
port cost for transporting the /nth com- 
modity produced by process 6* from 
country i to j, \i = 1, 2, . . . , M. Let 
p^ __ (-p.Mj > q d eno te the demand price 
of the ,uth commodity in the ith country, 
**=1, 2, . . . , N. Exchange rates be- 
tween countries, pi, are assumed known 
and are used to convert the prices and 
transport costs to a common currency 
basis. 

Each country's domestic demand for 
final commodities is assumed given as a 
known linear price-dependent function. 
Let D k = (di k ) = (yi k ) > denote the 
demand relations for the kth commod- 
ity in the ith country for all k and i 
such that 

(1) di k = yi k = «i k -E/3i hk Pi h 

h 

where ai k , /3i hk > for h = k and /3i hk 
otherwise unrestricted. Alternatively 
the inverse of (1) is 



la) 



k = X, k -Ea^V 



where the /3 and co matrices are assumed 
symmetric and positive definite and Xi k 
is strictly positive. 

Given the above definitions, assump- 
tions, and notation we propose to define 
our problem in the following "quasi- 



56 



ILLINOIS AGRICULTURAL ECONOMICS, DECEMBER, 1964 



welfare" sense: Given the linear domes- 
tic demand relations for final products in 
all countries, the production processes, 
the primary commodity endowments, and 
the transport costs for all mobile com- 
modities, we wish to find that price and 
allocation program that will maximize 
net consumer gain. Net consumer gain 
is defined as the summation of the inte- 
gral of the individual country's demand 
relations minus the total cost incurred in 
shipping the final intermediate and mo- 
bile primary commodities between coun- 
tries. 

In mathematical form the problem 
may be stated as: 
Problem I 
To maximize 



(2) 
f(Y,X) 



(3) 



Z—d Z—t Z—j Z—j tij Xij 

M 0" i 3 



Z-j Z-j Z-~i Z-j tij Xij 

M 0^ i J 

= Z( Ai'yi 2-yiVyi J 

— Zs 2—i Z-j Z-j tij Xij 

V- 0" i J 

subject to 

(4) ei k = Si k + E Ex/ - yi k < 



K 3 



(5) 



d 1 = Si 1 + EExji 01 
i e l 

-ZEE aj 10k Xij ek > 



k j e k 



(6) ei m = Si m +E E( Xji 0m -Xij 0m ) 



-LLai 



ik ok 



1 ^J 



Xji u 



EEai me x/> 



(7) ei n = Si n -EEa^Xj/ 

j k 

-EEa^Xj/ > 



J o" 



(8) 



yr\ x { f > 



In matrix form, these constraints are 
expressed as follows: 





P 


-G* k 


Y k 


(9) 


A i0 k _q 9 1 


X k 


A m0* AmS 1 _Q8™ 


x* 1 




A n0 k A n6 l 


x° a 




S k 




< 


S 1 

S n 




and 


(10) 






Y k , X** > 





Given this formulation in order to 
derive the necessary conditions for the 
maximum net consumer gain we form 
the following Lagrangean: 

(11) <KY,X,P) = f(Y, X) + P"e" 

= f (Y, X) + P k ei k 
+ P l 'e l + P m 'e m 
+ P n 'e n 

(12) for P*,X,Y > 

The necessary conditions for the 
maximum of (11) subject to (12) are 
given by the direct application of the 
Kuhn-Tucker optimality conditions [9], 
as follows: 



(13) 



d<f> 



ayX->( Xik -?^' h ) 

-P.<0and(A) 
•yi k = 



(14) 



d0 



dxij* k 



= pj k - Epi"a^ k - tij 
dcf) 



< and 



- flk 



dxij"' 



= for m = li m > n 



INTERNATIONAL TRADE MODELS 



57 



(15) 



dx/ 



(16) 



d<f> 



dx,r 



= Pj 1 - XpAV' - V 



< o and _**- ■ x-/ 

dx/ 

for fj. = m, n 



n .m — n .m — f A 
Pj Hi l u 



d<f> 









(17) 


B4> 


= e^ > and ,_ u 
dpi" 

= for \i = 1, m, ] 


and 






(18) 




P* X 5 ", Y k > 



Y- c 







Pi^ 



The conditions (13) through (17) may 
be expressed in matrix form as follows: 



(19) 



I k 

_ G / A 19^' A m/ A n6 

- G* 1 ' A m01 ' A* e 
-G em ' 



> 



P 1 

pm 
pn 



Xi - 


C0iV k 


np k 




pe 1 




^p m 





or 

(19a) 



A / P M 



(20) X* u A'P" - 



X - coy k 
X - wy k 



> 







and ' 

(21) P", Y k , X«" > 

The above conditions, (13) through 
(17) or (19) and (20), spell out the 
zero profit equilibrium conditions. Un- 
der this system prices are such that 
profits on all production processes actu- 
ally used are zero, and no process may 
permit a positive profit. Profits for all 



shipments of final, intermediate, and 
mobile primary commodities must be 
zero. Therefore, the prices of all mobile 
commodities in two different countries 
can differ at most by the unit cost 
of transportation. Transportation cost 
equals this price difference whenever 
positive flows take place. Rents on im- 
mobile resources exceed zero only if the 
resource or capacity is fully used. 

Given the quadratic net consumer gain 
function that is to be maximized subject 
to a set of linear constraints, by making 
use of a theorem for reducing nonlinear 
programming problems to linear pro- 
gramming problems and the duality 
theorem of linear programming, the 
primal and dual programming specifica- 
tions for the model are: 

Primal problem 
To maximize 



;rk 



X 6 



(22) [(X - coy k )', - TT] 

subject to (4) through (8) 

Dual problem 
To minimize 

(23) S"'P* 

subject to 

(24) A'P" = [(X - coy k )', - T d/ ] 
and 

(25) P^ > 

Under this specification the joint 
primal-dual programming formulation 

is this: 

To maximize 



(26) 

[<x-«y*)' f -ir] 



yk 

X e " 



- S* P" < 



subject to 

(27) A[y k \ X* k ', X 01 ', X* m '] + W = S" 



58 



ILLINOIS AGRICULTURAL ECONOMICS, DECEMBER, 1964 



Table 1. — International Activity Analysis Spatial Equilibrium Tableau 



P pt pi pm p n Y k X 9k X 91 X em W k W 1 W m W n V k V 9k V 9 ' V 9r 






\V k 


S k 






I 


-G* k 







w 1 


S 1 








A m 


-G el 





\\m 


S m 








A m0k 


^m#' 





w» 


S n 








_^n«k 


A n0l 


M 


Z k 


X 


I 




OJ 









yet 





-G 9k ' 


A Mk' 


^m«k' ^nflk' 









V 91 







-G* 1 ' 


J^md^' j\n$l' 









\79 m 









_Q0 m ' 







I 



G 



»m 



-I 



-I 



(28) A'P" - [V k ' } V* k ', V* 1 ', V° m ]' 

= [(A - coy*)', - TT ]' 
and 

(29) Y k , X e \ P", W, V k , V r > 

where W M , V k and V 9 " are slack variables. 
If this problem is solvable, then (2) 
assumes its maximum, and 



(30) 

[(a - coy k )', - T*'] 






_ SM p M = 



or 



(31) (X - coy k )'y k = S"'P" + T»"X* U 

(30) and (31) may be referred to as 
the balance of payment condition over all 
countries and the interpretation is that 
in equilibrium the total revenue from 
the sale of final commodities is com- 
pletely exhausted by the cost of produc- 
ing the bundle of final commodities (re- 
turns to resource owners) plus the 
transportation costs for the optimal flows 
of mobile commodities. The optimum 
solution to the problem will satisfy the 
equilibrium conditions, (13) through 
(18), and departures from this equilib- 
rium will decrease both the total net 
consumer gain to world consumers of 
final commodities and the total returns 
to resource owners. 

The formulation given in equations 
(26) through (29) leads to the Wolfe 
[5, 21], and the Dorfman and Barankin 
[1] algorithm for quadratic program- 
ming. The characteristics of the pro- 
gramming tableau for the international 



pricing and allocation model are shown 
in Table 1. In the table the I's represent 
identity matrices and M is any positive 
real number. Z k is an initial basic slack 
variable to be driven out in the course 
of the analysis. A more complete treat- 
ment of this type of model is presented 
in [18]. 

Model II — The Linear Demand 
and Supply Relation Model 

In this model we consider n countries 
that produce and consume m products. 
Let i, j denote the countries when i, j 
= 1,2, . . . , n and let h, k represent the 
commodity space where h, k = 1, 2, . . . , 
m. Assume that domestic demand and 
supply relations for each country and 
each commodity can be specified as 
linear functions. In this connection let 
pi k and p ik , with P = (pi k , p jk ), denote the 
demand and supply prices in country i 
for the kth product on a common cur- 
rency basis. Let di k denote the linear 
demand relations for the k products in 

m 

-Eft 1 



country i. Then di k = c^ 1 



h=l 



.hk-h 
i Pi > 

where «i k >0, ft hk >0 for h = k, /3i hk ^0 

for h^k for i = l, 2, . . . , n and h, k 
= 1, 2, . . . , m. Let Sj k denote the linear 
regional supply relations for the kth 
product in region j. Then Sj k = 0j k + 

H 7j hk p jh w here 0j k - 0, 7j hk > for h = k, 

h=l \ 

7j hk -0 for h^k for j = l, 2, . . . , n and 



INTERNATIONAL TRADE MODELS 



59 



h, k = l, 2, . . . , m. Let X = (xij k ) de- 
note the flows of commodity k from 
country i to country j. Let T = (tij k ) 
denote the unit transportation costs for 
shipping the kth commodity from coun- 
try i to country j. 

Given these definitions and assumptions 
the Samuelson [15] concept of net social 
payoff will be employed as a basis for 
specifying the objective or world welfare 
function. 1 Social payoff for a given com- 
modity and country is defined as the 
algebraic area under the excess demand 
relation [15]. Net social payoff for all 
countries and products is defined as the 
sum of the nk separate payoffs minus the 
total transport cost of all shipments. 
Within this specification the problem is 
to find that set of prices, demands, sup- 
plies, and intercountry flows which will 
make net social payoff a maximum. 

For the n country, m product case with 
domestic demand and supply relations for 
each country specified as linear functions, 
the Samuelson's net social payoff ■ — in 
this case, net world payoff — may be 
written as: 2 

(32) 

NWP = f(X), 

= EZ\i k Zx iJ k 

i k j 

l i k \ j / j 

i k j 

- Z)ai k - HI! St ij k x ij k 

i i k j 

where Xi k = (P~ l a)i k , Wi hk = (/3- 1 )i hk , M i k 
= -(y- 1 6)i k , Vi hk = (y~ l )i hk for all i, j, h, 

1 For an alternative criterion that may be 
used in specifying the objective function see 
Smith [16]. 

2 For a more complete development of this 
formulation see Takayama and Judge [19]. 



and k and aj is tne producers' and con- 
sumers' surplus in the ith country under 
pre-trade equilibrium. 

Our problem is to maximize (32) sub- 
ject to 

(33) Xii k > for all i, j, and k 

Necessary conditions for f(X) to be a 
maximum are as follows: 3 



(34) 



and 



af(X) 
ax u k 



\.k / ,,.hk / v..h ,, k 

h i 

-Em hk £xii h -tii k <o 



(35) af(X) • x- k = 
Since 

(36) Xi k - Ecoi hk Zxii h = pi k > 

h j 

and 

(37) M^-S^Exii = pi k >0 

h l 

we can also write these conditions as 

(38) pi k - p jk < tij k and 

(p.k _ p jk _ t ..k) Sij k = 

The economic interpretation of these 
maximum or equilibrium conditions is 
that the difference in prices of one pro- 
duct between any two countries can 
differ at most by the unit cost of trans- 
portation and in equilibrium for those 
countries between which flows take 

place pj k — p lk = tij k . For the countries 
where pi k — p jk <tij k no flows take place, 
i.e., xij k = 0. These price conditions 
are recognized as being consistent with 
those resulting from competitive be- 
havior and the uncoordinated efforts of 
the nk suppliers to sell their products at 
the maximum possible prices. 

The equivalent programming formula- 
tion in the domain of P of the above 



3 The derivation of the following conditions 
is performed by setting up the Lagrangean 
0(X,V) = f (X) + V'X and applying the Kuhn- 
Tucker conditions [9] in the same way as in 
Model I. 



60 



ILLINOIS AGRICULTURAL ECONOMICS, DECEMBER, 1964 



problem may be given as follows : 
To maximize 



F(P) =ZZai k Pi k 

i k 

-T??(? ft >' h > k 

i k 

-T??(?^ k P ih > k 



1 



C'P - y P'QP 



(39) 

subject to 

(40) 

and 

(41) 

where 

(42) C = (C k ) = («i k - d^) 

(43) 



G'P < T 



P > 



G 



G 1 



G 2 



G 1 



; (2mn) x (2mn) 



where 
(44) 



Gi = 



1 1 

1 1 



•1-1 1 



-1-1 1 



-1-1 1 



; (2n x n 2 ) 



(45) 



Q = 



ft 11 
ft 12 



/3i 



21 



/3i 



ml 



7 .11 7 .21 



/3i 



22 



/3i 



.m2 



Ti 



12 



7i 



22 



7 



7 



ml 



m2 



j8i lm • j3i 2m • 

7 .lm 

(2mn x 2mn) 



ft 1 



■y.lm /y.2m . 



7 



mm 



where 



(46) ft hk = 



ft hk 



& hk 



/3n 



hk 



; (n x n) 



(47) Ti * k = 



7i 



hk 



72 



hk 



7n 



hk 



; (n x n) 



Proceeding as in the previous model 
the primal-dual programming formula- 
tion is: 

To maximize 

(48) g(P, X) = [C - QP]' P - T'X 

= - V'X < 
subject to 



G'P + V = T 
GX = C - QP 

GX + QP = C 

X, P, V>0 



(49) 

(50) 
or 

(51) 

and 

(52) 

where 

(53) X = (xu 1 , x 12 \ • • • , x nn m )' 

(54) V = (v n \ v 12 \ • • • , v nn m )' 

Again this formulation leads to the 
Wolfe, Dor f man and Barankin algorithm 
for quadratic programming. The tableau, 
Table 2, shows the characteristics of the 
algorithm for this problem. By investi- 
gating the identity of (38), (48), and 
(49); (36), (37), and (50) or (51); 
and (34), (36), (37), and (52), we es- 
tablish the equivalence of two formu- 
lations. 



INTERNATIONAL TRADE MODELS 



61 



Table 2. — The Simplex Tableau for Model II 



c 



















Po 


X >0 


P>0 


V > 


-M 


z, 


T 




G' 


I 


-M 


Z 2 


C 


G 


Q 





In order to make clear the formulation 
of the models and the attendant structure 
of the programming problem a simple 
illustrative example is specified. 

Assume the case of two products (k = 
1,2) and two countries (i = 1, 2) with 
linear demand and supply relations given 
for each of the products in each of the 
countries. If the transport cost ty k is 
given for the movement of each of the 
products between countries then the tab- 
leau corresponding to Table 2 for this 
specification is given in Table 3. 

Discussion of the Models 

We have attempted in this paper to 
specify two equilibrium models for a 
world economy that would account for 
the pricing and allocation of primary, 
intermediate, and final commodities in 
space. The primary emphasis of the pa- 
per has been directed toward an "opera- 
tional" specification (1) when individual 
country-final commodity linear demand 
relations were introduced in the activity 



analysis model, and (2) when both linear 
commodity demand and supply relations 
were specified. This specification yields 
great flexibility and information over and 
above previous models where final com- 
modity prices by countries are considered 
fixed or the demand and supply of each 
commodity in each country is considered 
predetermined. 

In terms of application, the models 
provide great flexibility in regard to the 
type and dimension of the problems in- 
vestigated. In principle, an applied prob- 
lem could range from one or a few com- 
modities to a sector of each country or 
over all sectors of each country. In addi- 
tion, if certain demands and supplies are 
predetermined this information could be 
incorporated in the models. 

In many cases the researcher may want 
to concentrate on a particular group of 
countries, such as the countries contained 
in a common market. Therefore, primary 
emphasis could be devoted to the produc- 
tion and demand characteristics of the 
group of countries, and the other coun- 
tries could be aggregated into the "rest 
of the world" to preserve the equilibrium 
characteristics of the model. 

In the models presented, competitive 
behavior has been specified for all par- 
ticipants. However, the specifications 



Table 3. — International Equilibrium Simplex Tableau 
(Country Demand and Supplies Represented by Linear Functions) 





Cj 










































































Ci 


Po 


Xll 1 


X12 1 


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62 



ILLINOIS AGRICULTURAL ECONOMICS, DECEMBER, 1964 



could be altered to accommodate other 
types of market behavior. Tariffs and 
trade agreements between countries have 
been omitted from the models. In the 
real world, of course, each of these de- 
vices exists and is important in determin- 
ing the patterns of international trade. 
Each of these considerations can be han- 
dled in the model by introducing addi- 
tional restrictions. For example, a tariff 
between two countries might be consid- 
ered as an addition to the transport cost, 
and a trade agreement affecting the flow 
of a commodity between two countries 
could be handled by adding an additional 
restriction. An export subsidy could be 
handled as a negative tariff. Stocks of a 
final or intermediate commodity in a 
country could also be incorporated in the 
models. 

In the models proposed the exchange 
rate pi was taken as given. Unless by 
some lucky quirk of fate pi is the opti- 
mum exchange rate the income-expendi- 
ture situation for each country may not 
balance. In order to bring about a bal- 
ance of payments for each country, and 
thus a competitive equilibrium solution 
[20], some mechanism would have to be 
devised to obtain or determine the opti- 
mum exchange rate. As the models now 
stand they do indicate the degree of dis- 
crepancy in the balance of payments that 
one might expect under given exchange 
rates and technical conditions. 

The models as proposed are structured 
for short-run analyses. Long-run anal- 
yses could be specified by relaxing the 
restrictions on some immobile primary 
commodities (for example, labor). In 
addition, since problems over time have 
many of the characteristics of problems 
over space, an international-intertemporal 
model could be specified. 

From a computational standpoint the 
algorithms proposed for the models offer 
an efficient method for computing the 



equilibrium solutions. Since the algo- 
rithm can be used with either a quadratic 
or modified linear programming routine 
the method should be within the comput- 
ing resources of many researchers. We 
believe the empirical counterparts of 
models such as these are necessary if we 
are to develop an adequate strategy for 
making the role of trade effective in eco- 
nomic development. 



LITERATURE CITED 

[1] E. W. Barankin and R. Dorfman, On 
Quadratic Programming. Univ. of Calif. 
Publications in Statistics. 1958. 

[2] M. J. Beckman and T. Marschak, An Ac- 
tivity Analysis Approach to Location 
Theory. Proc. Symp. Linear Program- 
ming. Washington, D. C. pp. 357-77. 1955. 

[3] D. G. Dantzig, "Programming of Interde- 
pendent Activities : Mathematical Model." 
Analysis of Production and Allocation. 
Ed. T. C. Koopmans. John Wiley and 
Sons, New York. 1951. 

[4] S. Enke, Equilibrium Among Spatially 
Separated Markets. Econometrica 19 :40- 
47. 1951. 

[5] M. Frank and P. Wolfe, An Algorithm 
for Quadratic Programming. Nav. Res. 
Logistic Quar. 3:108-09. 1956. 

[6] F. D. Graham, The Theory of Interna- 
tional Values. Princeton University Press. 
1946. 

[7] T. C. Koopmans, Optimal Utilization of 
the Transport System. Econometrica 17 : 
136-46. 1949. 

[8] T. C. Koopmans, "Analysis of Production 
and the Efficient Combination of Activi- 
ties." Analysis of Production and Alloca- 
tion. Ed. T. C. Koopmans. John Wiley 
and Sons, New York. 1951. 

[9] H. Kuhn and A. Tucker, Nonlinear Pro- 
gramming. Proc. 2nd Berkeley Symp. 
Ed. J. Neyman. University of California 
Press, pp. 481-92. 1951. 

[10] L. Lefeber, Allocation in Space. North 
Holland Publishing Co., Amsterdam. 1958. 

[11] L. W. McKenzie, Specialization and Effi- 
ciency in World Production. Rev. Econ. 
Studies 21:165-180. 1954. 



TRADE LIBERALIZATION: ISSUES AND IMPLICATIONS 



63 



[12] J. L. Mosak, General Equilibrium Theory 

in International Trade. lVincipia Press, 
Inc., Bloomington. 1944. 

[13] B. Ohlin, Interregional and International 
Trade. Harvard University Press. 1933. 

[14] P. vS. Samuelson, Prices of Factors and 
Goods in General Equilibrium. Rev. Econ. 
Studies 21:1-20. 1953-54. 

[15] P. S. Samuelson, Spatial Price Equilib- 
rium and Linear Programming. Amer. 
Econ. Rev. 42 :283-303. 1952. 

[16] V. L. Smith, Minimization of Economic 
Rent in Spatial Price Equilibrium. Rev. 
Econ. Studies 30:24-31. 1963. 

[17] B. H. Stevens, An Interregional Linear 
Programming Model. Jour. Regional Sci. 
1:60-98. 1959. 



[1S| T. Takayama and G. G. Judge, An Inter- 
regional Activity Analysis Sector Model. 
Jour, barm Econ. 46 : 349-65. 1964. 

[19] T. Takayama and (i. G. Judge, Equilib- 
rium Among Spatially Separated Markets: 
A Reformulation. Econometrica 32:510- 
524. 1964. 

[20] PI. Uzawa, Prices of the Factors of Pro- 
duction in International Trade. Econo- 
metrica 27 :448-68. 1959. 

[21] P. Wolfe, The Simplex Method for 
Quadratic Programming. Econometrica 
27:382-98. 1959. 

[22] T. O. Yntema, A Mathematical Reformu- 
lation of the General Theory of Interna- 
tional Trade. University of Chicago 
Press. 1932. 



Trade Liberalization: Issues and Implications 



STEPHEN 
Department of Agricultural 

Protectionist import poli- 

cies limit competition, violate the princi- 
ple of comparative advantage, and impede 
progress toward international specializa- 
tion in agricultural products. Concerted 
action is sought to moderate the protec- 
tive features of domestic agricultural 
policies and obtain arrangements that 
regularize and stabilize trade. 

Efforts for the achievement of this ob- 
jective are underway now through the 
forum provided by the U.N. Conference 
on Trade and Development and the 
"Kennedy Round" of negotiations spon- 
sored by GATT (General Agreement on 
Tariffs and Trade) which began on May 
4, 1964. Opinion is growing that imports 
from temperate-zone producers should 
be assured access to traditional markets 
at some recent levels of these imports 
within the framework of worldwide com- 
modity agreements. 

The United States is especially inter- 



C. SCHMIDT 
Economics, University of Illinois 

ested in working out such market access 
arrangements for food and feed grains, 
oils and fats, and certain livestock prod- 
ucts. A similar approach is considered 
suitable for dealing with the problems of 
noncompeting tropical products supplied 
mainly by underdeveloped nations. To 
many nations in Asia and Latin America, 
which are confronted with recurring in- 
flationary pressures, balance of payments 
problems, and food shortages, access to 
export markets represents an indispen- 
sable element. For economic development 
this is as important as the ability to obtain 
foreign capital and managerial and tech- 
nical skills. 

On the whole, however, the internal 
and external commercial policies of in- 
dustrial countries are not conducive to a 
more rapid and self-sustained economic 
development of the less advanced coun- 
tries. In this regard the possibilities of 
enlarging the demand for the products of 



64 



ILLINOIS AGRICULTURAL ECONOMICS, DECEMBER, 1964 



the less-developed nations through the 
liberalization of nontariff barriers re- 
ceived considerable attention. This led to 
the suggestion of broadening the range 
of negotiable trade barriers under GATT 
with special reference to internal fiscal 
charges and quantitative restrictions. 

Although there is undoubtedly consid- 
erable scope for expanding U.S. exports, 
it is open to question whether, with the 
emergence of regional trading blocks, 
they can be maintained in the future. It 
is the major objective of this paper to 
(1) describe the principal economic and 
institutional forces that affect the level 
and pattern of trade in temperate and 
tropical zone foods and raw materials, 
and (2) underline the urgency of the 
need for studies that encompass the cur- 
rent and contemplated domestic policies 
of industrial countries as they affect in- 
ternational trade and studies that lead to 
the formulation of intergovernmental ar- 
rangements that promote continued 
growth in trade and in the economic de- 
velopment of primary exporting coun- 
tries. 

Position of Export Countries 

The main concern of export countries, 
whether temperate or tropical, is to find 
means that ensure continued access to 
traditional markets together with a share 
in their growth. Efforts toward the 
achievement of this objective received 
official endorsement and support with the 
inception of the GATT program for lib- 
eralization and expansion of world trade 
approved at a meeting of ministers in 
November 1958. 

The implementation of action programs 
was assigned to three committees. Spe- 
cifically, the principal responsibility of 
Committee I was to promote trade by 
abolishing or reducing customs duties. 
The work of this Committee culminated 
in the Geneva 1960-61 Tariff Confer- 



ence. 1 The function of Committee II was 
to deal with nontariff measures and poli- 
cies inhibiting international agricultural 
trade. 2 Committee III considered the ex- 
pansion of export earnings of less-devel- 
oped countries, and questions confront- 
ing diversification of their economies. 3 

All things considered, much importance 
is attached to the development and pur- 
suit of policies and programs that (1) are 
consistent with the aim of facilitating the 
development and diversification of the 
economies of the undeveloped countries, 

(2) moderate the degree of protection 
extended to competing temperate zone 
commodities as well as manufactures ex- 
ported by undeveloped countries, and 

(3) reduce import duties, internal fiscal 
charges, and other obstacles to the growth 
of trade in noncompeting primary com- 
modities. 

The successful realization of this ob- 
jective will hinge, inter alia, upon the 
sincerity and willingness of governments 
to submit disputes and conflicts of inter- 
est that might arise to international con- 
ciliation and if necessary arbitration. 
Opportunity to test the receptivity of 
various governments toward seeking such 
negotiated settlements is being provided 
by two international forums: the first 
U.N. Conference on Trade and Devel- 
opment convened under the aegis of 
U.N.'s Economic and Social Council, and 
the "Kennedy Round" of negotiations 
conducted under GATT auspices. 

1 For an itemized list of reciprocal tariff 
concessions made at this conference, see "Pro- 
tocol to the General Agreement on Tariffs and 
Trade Embodying Results of the 1960-61 Tariff 
Conference," Treaties and Other International 
Acts Series 5253. U.S. Dept. State, 1963. 

2 For an elaboration on the conclusions 
reached by Committee II, see "Trade in Agri- 
cultural Products," 2nd and 3rd Rpts. Com- 
mittee II. GATT, Geneva. 1962. 

3 For a discussion of the principal findings 
and recommendations of Committee III, see 
"Trade of Less-Developed Countries," Spec. 
Rpt. Committee III. GATT, Geneva. 1962. 



TRADE LIBERALIZATION: ISSUES AND IMPLICATIONS 



65 



Countries Exporting Primary 
Commodities 

An indication of the nature of prob- 
lems encountered by this group of coun- 
tries may be gained from a review of the 
longterm trends in the level and pattern 
of their trade transacted with the indus- 
trially advanced countries. The distinc- 
tive features of this trade were (1) the 
exchange of primary commodities for 
manufactures. 4 (2) disparity between the 
export supply and import demand for 
primary commodities, (3) marked short 
period instability of primary commodity 
prices, (4) deterioration in the terms of 
exchange between primary commodities 
and manufactures, and (5) divergence in 
trends between foreign demand for ex- 
ports of the primary producing countries 
and their demand for imports. 

The relatively slow growth in trade of 
primary commodities can be attributed to 
an important degree to the structural 
changes in demand that are taking place 
in the major importing countries. These 
changes include a shift in consumer pref- 
erences towards more highly processed 
products and technological advances that 
give rise both to economies in raw mate- 
rial use and to the creation of synthetic 
substitutes. In this context it should be 
emphasized that cotton, jute, silk, and 
sisal are encountering growing competi- 
tion from man-made fibers. Likewise, 
since the late 1950's competition has been 
intensified between natural and synthetic 
rubber with the latter accounting for 
about one-half of world requirements. 

Of greatest importance among demand 
and trade restraining factors are govern- 
mental protectionist policies exemplified 
by revenue duties and internal fiscal 
charges, quantitative restrictions, tariffs, 
and state trading. 

4 Apart from the simple processing of pri- 
mary materials manufactures, exports of 
underdeveloped countries consist very largely 
of textiles and jute goods. 



It was found that duties and internal 
taxes levied by the major Western Euro- 
pean countries on items such as col 
cocoa, and citrus fruits accounted for 20, 
9, and 11 percent of their respective retail 
values. By contrast the comparable fig- 
ures for tea and bananas were low — 
amounting only to 2 and 4 percent." 

Quantitative import restrictions are ap- 
plied by the industrial countries in gen- 
eral against a wide array of products 
such as vegetable seeds and oils, coffee, 
raw cotton, tobacco, tropical timber, man- 
ufactures of jute and cotton, and a 
number of other industrial goods. Not- 
withstanding some progress toward liber- 
alization, the incidence of these restric- 
tions is heavier on products originating 
in the less developed countries than those 
obtained from other areas. 

Account must be taken also of tariff 
barriers which separately or in combina- 
tion with quantitative restrictions impede 
trade. They are being maintained partic- 
ularly with respect to vegetable oils, trop- 
ical beverage crops, manufactures of 
jute and cotton, sports goods, aluminum, 
ferro-alloys and copper rollings, leather 
products, and certain other commodities. 
Also a possible loss of export opportuni- 
ties for less developed countries arises 
from the institution of surplus disposal 
schemes, involving either temperate or 
tropical zone products, and from the op- 
eration of price support programs. 

Attention must then be given to the 
direction and magnitude of trade diver- 
sion resulting from the preference and 
growth effects of Western European eco- 
nomic integration. Clearly, the preferen- 
tial terms of entry accorded to products 
of associated overseas countries will dis- 
tort the normal competitive pattern of 
markets and ultimately reduce the de- 



5 "Tropical Fruit and Beverages : Duties and 
Taxes in Western Europe," UX/FAO, 
Monthly Bui. Agr. Econ. and Stat. 2(12) :9. 
1962. 



66 



ILLINOIS AGRICULTURAL ECONOMICS, DECEMBER, 1964 



mand for third-country exports. 6 This 
tendency is expected to be reinforced by 
the increased flow of public and private 
investments speeding up the economic 
growth of associated primary exporting 
countries. According to Thorbecke's es- 
timates the emergence of the European 
Economic Community will be detrimental 
to exports from both temperate and trop- 
ical areas. 7 His analysis suggests that 
among nonassociated producing countries 
in tropical zones those of Latin America 
are likely to suffer the greatest loss of 
market. 

Finally, it is appropriate to note that 
the relatively slow growth in population 
in the industrial importing countries may 
also have been an important causal factor 
keeping a check on the expansion of de- 
mand for tropical products. With respect 
to price behavior among the major trop- 
ical export products, coffee, cocoa, and 
rubber have exhibited the highest degree 
of variability. Considering that the price 
elasticity of demand for beverage crops 
in the importing countries is low, varia- 
tions in supply generally result in large 
price fluctuations. 

Apart from achieving political inde- 
pendence, industrialization has received 
top priority among national objectives of 
underdeveloped countries. As a result of 
the drive for industrialization, the rate 
of increase in imports during recent years 
has exceeded the growth in export earn- 
ings, thus causing continued pressure on 

8 According to the Treaty of Rome 16 over- 
seas territories and countries of EEC mem- 
bers were given associate status for five years. 
This means that the products, consisting mainly 
of coffee, cocoa, vegetable oils and bananas, 
originating in these countries gain admittance 
into EEC on terms that discriminate against 
other nonassociated primary exporters in 
Africa or Latin America. The initial five- 
year term expired December 31, 1962, but new 
arrangements provide for another five-year 
extension of this association. 

7 Erik Thorbecke, European Economic In- 
tegration and the Pattern of World Trade. 
Amer. Econ. Rev. 53(2) : 147-173. 1963. 



external balances. With disparities be- 
tween domestic production and consump- 
tion of food, aid provided under the 
authority of U.S. Food for Peace and 
P.L. 480 programs has saved scarce for- 
eign exchange reserves and released them 
for the purchase of investment goods. 
Some food also has been bartered for 
strategic commodities or donated to 
friendly foreign populations. 8 

Accentuating the strains on the ex- 
ternal financial resources of underdevel- 
oped countries is the loss in international 
purchasing power stemming from a de- 
terioration in their terms-of-trade posi- 
tion. A fall in primary commodity prices 
relative to manufactures reduces the pur- 
chasing power of export proceeds. Such 
a fall also offsets some of the benefits of 
economic aid or loans received by these 
countries. Hence, from the standpoint of 
the industrial countries the gains accru- 
ing from lower raw material costs must 
be balanced against the loss in exports to 
underdeveloped countries. These deficits 
have been met by using foreign exchange 
reserves, private foreign capital invest- 
ments, and public grants or loans. For 
instance, directional tax incentives have 
been used to attract foreign capital into 
a particular type of favored activity such 
as manufacture for exports. 

There are, however, various reserva- 
tions among the governments of under- 
developed countries regarding the extent 
and form in which foreign capital should 
make its contribution to the achievement 
of the industrialization objectives. An 
important aspect of this dilemma is posed 
by the desire to resolve conflicts between 
the imperatives of industrialization and 

8 For a discussion of this and other aspects 
of food aid, see E. L. Menzie, et al., "Policy 
for United States Agricultural Export Surplus 
Disposal," Univ. Ariz. Tech. Bui. 150, Ch. 5, 
1962; and Lawrence Witt and Carl Eicher, 
"The Effects of United States Agricultural 
Surplus Disposal Programs on Recipient Coun- 
tries," Mich. State Univ. Res. Bui. 2, Ch. 5, 
1964. 



TRADE LIBERALIZATION: ISSUES AND IMPLICATIONS 



67 



the emergence of popular sentiments and 
apprehensions against foreign domination 
of industrial ventures. Although various 
ways can and have been found which 
obviate the most frequently raised objec- 
tions to private foreign investment this 
source of finance appears inadequate to 
meet the mounting demand of industrial- 
ization. 9 

For this and other reasons not elabo- 
rated here there is widespread interest in 
the feasibility of establishing an interna- 
tional mechanism which promotes the 
fullest possible access to markets of the 
industrial countries. The barrier to these 
markets which is perhaps the most diffi- 
cult to overcome is that raised by the 
internal and external commercial policies 
of the countries concerned and the lack 
of formal international machinery facili- 
tating their removal. 

It is important to bear in mind that the 
commercial policies of industrial coun- 
tries are frequently contradictory rather 
than complementary to some of their 
other policies aimed at speeding up the 
economic development of underdeveloped 
countries. Notably the benefits accruing 
from the pursuance of liberal economic 
aid policies may easily be dissipated by 
restrictive commercial policies which 
place a number of obstacles in the way of 
expanding exports from underdeveloped 
countries. Accelerating the rate of eco- 
nomic development and advances towards 
self-sustaining growth requires not only 
aid but opportunity for the opening of 
new trade channels and earning of for- 
eign exchange. Concurrent with the ad- 
vance in industrialization, dependence on 
trade increases and that on aid gradually 
becomes smaller. 

This is not to suggest that all obstacles 
limiting exports of primary commodities 
and manufactures from the underdevel- 



9 U.N., Official Records of the Economic and 
Social Council. 32nd Session Annexes, agented 
items 2 and 5. Geneva, pp. 5-30. 1961. 



oped countries should be eliminated as 
rapidly as possible. The reduction in 
these obstacles could be gradually phased 
out as part of a long-run overall program 
oriented toward the liberalization of 
world trade and promotion of economic 
development. 

Of special interest in this context are 
problems created by the differentiation, 
in the external commercial policies of 
industrial countries, between manufac- 
tures imports obtained from the less de- 
veloped countries and those from other 
industrial countries. The obstacles im- 
posed by the industrial countries on im- 
ports of these products consist mainly of 
tariffs, import quotas, and requests to the 
exporting countries for voluntary re- 
straints on the volume of their exports. 10 
While restrictions of this nature afford a 
justifiable protection to stagnant domestic 
industries in the short run there is reason 
to question whether such a course of ac- 
tion would serve the long-run interest of 
either the importing or exporting coun- 
tries. 

Undoubtedly the allocation of re- 
sources, in both the importing and ex- 
porting countries, to industries in which 
they enjoy greater comparative advantage 
will yield the greatest benefits to the 
trading parties. Accordingly, the difficul- 
ties confronting underdeveloped countries 
are not confined to market access ar- 
rangements alone but follow from na- 
tional programs for industrial develop- 
ment which tend to emphasize balanced 
domestic growth rather than international 
specialization. A key problem to be re- 
solved in this respect involves the assign- 
ment of priorities in the stimulation of 
export-boosting or import-substituting in- 
dustries. If manufactures are to contrib- 
ute to expanding export earnings of the 
underdeveloped countries in years ahead, 

10 "Basic Instruments and Selected Docu- 
ments," 8th Supp.. 2nd Rpt. Committee III. 
GATT, Geneva. 



68 



ILLINOIS AGRICULTURAL ECONOMICS, DECEMBER, 1964 



it is desirable that these countries pay 
greater attention to the diversification of 
their industrial base and comparative 
efficiency of production. 

It seems both possible and essential to 
arrive at a situation in which the under- 
developed countries end their dependence 
on the export of a limited range of raw 
materials susceptible to severe short- 
period instability. While the conclusion 
of international agreements governing 
trade in specific commodities has shown 
an encouraging trend toward intergov- 
ernmental cooperation, they have so far 
failed to offer promise of alleviating the 
adverse effects of instability. Such rec- 
ognition has heightened interest in the 
formulation of transitory action pro- 
grams that provide financial compensa- 
tion for short term declines in export 
earnings until a more permanent solution 
can be worked out. 11 It should be em- 
phasized that, with the lag between the 
demand for and supply of food, the un- 
derdeveloped countries must also pay 
attention to increased agricultural pro- 
duction. 

In the light of past experiences the 
underdeveloped countries concluded that 
existing international agencies and insti- 
tutional arrangements are ineffectual in 
bringing about reductions of trade bar- 
riers consistent with their aim of eco- 
nomic development. The GATT-spon- 
sored negotiations and confrontations are 
a case in point. Progress in trade liberal- 
ization has been hampered, in addition to 
factors discussed earlier, by the fact that 
nontariff barriers and subsidies are not 



11 For a review of various commodity sta- 
bilization arrangements, see "International 
Compensation for Fluctuations in Commodity 
Trade," U.N. publication, No. 61, II. D. 3. Par. 
133-140, New York, 1961; "Trends in Inter- 
national Trade," Par. 222-246, GATT, Geneva, 
1958; and R. F. Mikesell, "International Com- 
modity Stabilization Schemes and the Export 
Problems of Developing Countries," Amer. 
Econ. Rev. 53(2) :75-92. 1963. 



subject to negotiation in GATT. Among 
the former, internal fiscal charges and 
quantitative restrictions pose the biggest 
obstacles to expansion in trade. Yet the 
beneficial stimulus engendered by the re- 
duction or elimination of import duties 
and internal fiscal charges to the exports 
of primary producing countries should 
not be overestimated. 

According to the findings of a recently 
concluded study the complete removal of 
taxes and duties might induce increases 
of about 11 percent in Western European 
imports of coffee and citrus fruits, about 
8 percent in those of cocoa, and 5 percent 
in those of bananas. 12 In this connection 
it is important to bear in mind that the 
benefits of possible tariff concession se- 
cured through GATT negotiations may 
be impaired or nullified by the simultane- 
ous introduction or raising of internal 
fiscal charges and other nontariff barriers. 
It is doubtful whether anything is gained 
if the complainant country invokes Ar- 
ticle xxiii of GATT and asks permission 
to revoke its concessions. Moreover, 
many countries including the U.S.S.R. 
are not members of GATT and thereby 
do not become parties to any agreement 
that may be concluded. 

The aspirations of countries that ex- 
port primary commodities received for- 
mal expression in the "Declaration on 
Promotion of the Trade of Less-Devel- 
oped Countries" adopted at the GATT 
Ministerial Meeting in November, 1961, 
and subsequently reiterated in the delib- 
erations of the first U.N. Conference on 
Trade and Development, March 23 to 
June 15, 1964. 13 Particular emphasis was 
placed on trade, aid, and international 

12 "Tropical Fruit and Beverages : Duties 
and Taxes in Western Europe," UN/FAO 
Monthly Bui. Agr. Econ. and Stat. 2(12) :9-10. 

13 For a summary of specific recommenda- 
tions made by the Committee, see "GATT 
Program for Expansion of International Trade, 
Trade of Less-Developed Countries." Spec. 
Rpt. Committee III. pp. 21-24. 1962. 



TRADE LIBERALIZATION: ISSUES AND IMPLICATIONS 



69 



commodity agreements as means to fur- 
ther the economic development of these 
countries. 

With respect to trade, it was felt that 
every effort must be made to enlarge the 
flow of goods and equipment, both 
through existing facilities and the open- 
ing of new channels, between industrial- 
ized countries and those exporting pri- 
mary commodities. Explicit recognition 
was given to the desirability of expand- 
ing trade with all countries or regions 
regardless of differences in their eco- 
nomic and social systems. In order to 
obtain maximum benefits from expanded 
trade the underdeveloped countries 
pressed for arrangements to ensure ready 
access to markets of the industrial coun- 
tries without the granting of counter- 
concessions. Closely linked to this objec- 
tive are the formulations of measures that 
discourage or prevent regional economic 
groupings from adopting policies of ex- 
cessive agricultural protection prejudicial 
to the interest of efficient outside pro- 
ducers. In pursuit of these objectives the 
work of the conference overlaps that 
conducted by GATT. 

Much consideration was given also to 
measures and programs for dealing with 
instability in primary-commodity mar- 
kets, financing trade deficits, and refi- 
nancing overdue debts. A partial remedy 
for mitigating the problems created by 
short-term fluctuations in export earn- 
ings was provided through special draw- 
ing facilities at the International Mone- 
tary Fund (IMF). Since March 1963 
member countries have been allowed to 
draw up to one-fourth of the amount of 
their IMF quota in currencies of their 
choice. 

There was some opinion that the solu- 
tion for instability lies in the establish- 
ment of international commodity agree- 
ments regulating the price, production, 
and marketing of principal export prod- 



ucts. In addition to those currently in 
force, international agreements were pro- 
posed for a number of important com- 
modities such as cereals, cotton, coconuts, 
jute, hard fibers, rice, rubber, lead, and 
zinc. 14 Regarding the financial aspects of 
the trade problem, efforts are underway 
to (a) devise a scheme providing inter- 
national compensatory financing and (b) 
enlarge the purview of existing inter- 
national institutions, permitting them to 
support the exports and imports of un- 
derdeveloped countries at terms best 
suited to their specific needs. 15 

While there is a considerable amount 
of interest in the formation of a com- 
pletely new and full-fledged world trade 
organization it is too early to tell what 
course of action will be taken in this 
matter. 

Temperate Food-Exporting Countries 

Agricultural protection in the industrial 
countries is the principal obstacle to the 
potential expansion of trade in temperate- 
zone products. Among the numerous mo- 
tives for protectionist policy, three appear 
of decisive importance: food shortages, 
balance of payments difficulties of the 
early postwar years, and the tendency of 
agricultural incomes to lag behind the 
rise in industrial incomes. 

In view of the progress toward self- 
sufficiency in food production, and the 
impressive gains in terms of gold and 
foreign exchange reserves, the argument 
for protectionist policies now rests on the 
need to support agricultural incomes. 
This objective is being pursued by means 
of raising domestic prices and thus ex- 
cluding foreign competition. Indeed, be- 
cause the agricultural vote is of great 

14 Commodities which currently are covered 
by international agreements are coffee, olive 
oil, sugar, tin, and wheat. 

15 For other items appearing on the agenda 
of the conference, see "World Agriculture," 
12(4) :9-ll. 1963. 



70 



ILLINOIS AGRICULTURAL ECONOMICS, DECEMBER, 1964 



political importance in major importing 
countries, attitudes toward price and 
trade programs are conditioned as much 
by political as by economic considerations. 
About 20 percent of EEC's labor force is 
employed in agriculture as compared to 
about 8 percent in the United States. 

Although at this time it is impossible 
to anticipate the level of prices to be es- 
tablished within EEC it seems apparent 
that the Common Market policy so far 
adopted affords a sheltered position to 
domestic producers and thereby works 
to the detriment of both domestic con- 
sumers and third-country suppliers. 16 

International discussion and negotia- 
tion to achieve some moderation in the 
degree of agricultural protection and to 
spur world trade forms an integral part 
of the work contemplated for the 1964 
GATT meetings. The main stimulus for 
these meetings undoubtedly has come 
from the United States and has been 
supported by other exporters of temper- 
ate-zone products. 

According to the conclusions and reso- 
lutions adopted by the GATT Ministerial 
Meeting of May 16-21, 1963, the trade 
negotiations shall (1) cover all classes of 
products — industrial, agricultural and 
primary, (2) in addition to tariffs, deal 
also with nontariff barriers to trade, and 
(3) aim at reducing barriers to exports 
of the undeveloped countries without rec- 
iprocity. 17 

These objectives are more easily sought 

lfi For a comprehensive treatment of the im- 
pact of integration on third country exports to 
EEC, see Elmer W. Learn, "Long Term 
Effects of Common Market Grain Policies," 
Foreign Agricultural Trade of the United 
States, ERS, USDA, Jan. 1963; and Lawrence 
B. Krause, "The Common Market : New Chal- 
lenges to U.S. Exports," in Factors Affecting 
the United States Balance of Payments, Part 2, 
Joint Econ. Committee Print, Washington, 
D.C. 1962. 

17 For a complete list of principles and pro- 
cedures adopted for the conduct of GATT 
negotiations, see "World Agriculture" 12(4) : 
7-9. 1963. 



than achieved. One basic difficulty is that 
the GATT framework of trade negotia- 
tions is more suitable for the treatment of 
industrial than of agricultural products. 
The essential problems in this respect 
are that GATT does not differen- 
tiate, in principle, between trade in agri- 
cultural and industrial products and that 
it appears ineffectual in coping with non- 
tariff barriers to trade. 18 Because tariffs 
are of minor importance in the control 
of trade of agricultural commodities, the 
task of trade liberalization will fall on 
leveling a multiplicity of nontariff bar- 
riers. These can range from import quo- 
tas and licenses to state trading. 19 

Nontariff Barriers 

GATT rules still permit the application 
of many nontariff restrictions, although 
they are subject to carefully specified 
conditions. Included are national security 
interest; health, safety, and sanitary reg- 
ulations; protection of public morals; and 
the securing of compliance with laws or 
regulations which are not inconsistent 
with the provisions of GATT. In the 
case of the latter condition, Article xi of 
GATT permits the application of import 
restrictions to those agricultural products 
for which domestic production control 
measures are in force. It must be recog- 
nized that with the reduction or elimina- 
tion of tariff barriers these restrictions 
assume an increasing role in hindering 
freer world trade. Even quantitative im- 
port restrictions can be circumvented by 
indirect barriers such as excise taxes, 
horsepower taxes, and health and safety 
regulations. Also, taxes can be graduated 

18 "Basic Instruments and Selected Docu- 
ments." 7th Supp. GATT, Geneva. 1959. 

19 For a nearly complete list of remaining 
quantitative restrictions on imports in use, see 
Joint Economic Committee, "The United States 
Balance of Payments — Perspectives and Poli- 
cies." U.S. Govt. Print. Office. Washington, 
D. C pp. 140-159. 1963. 



TRADE LIBERALIZATION: ISSUES AND IMPLICATIONS 



71 



in such manner that their incidence be- 
comes discriminatory against imported 
goods. 20 

Export Subsidies 

As in the case of quantitative restric- 
tions, GATT is also opposed to export 
subsidies. According to Article xvi 
(B:2), "The contracting parties recog- 
nize that the granting by a contracting 
party of a subsidy on the export of any 
product may have harmful effects for 
other contracting parties, both importing 
and exporting, may cause undue disturb- 
ance to their normal commercial interests, 
and may hinder the achievement of the 
objectives of this agreement." This ar- 
ticle further states that, insofar as such 
subsidies are nonetheless used they 
should not "result in obtaining for the 
subsidizing country more than an equi- 
table share of the world export trade in 
the product concerned." For nonprimary 
products, subsidies are prohibited under 
a declaration which became effective in 
November 1962, provided that they re- 
sult in a lower export price than domestic 
price for the same product. Remission of 
sales and excise taxes on exports also 
results in lowering export prices below 
the levels of domestic prices. This prac- 
tice is widely used by various continental 
European countries and it places the 
United States at a competitive disadvan- 
tage relative to producers from these 
countries. 



"Thus, U.S. -made cars with comparatively 
higher horsepower engines might become easy 
targets for such types of unfair trade practice. 
For instance, Italy has a road tax which puts 
an extra $450 duty on standard American cars, 
$170 on American compacts, $44 on Yolks- 
wagons, and only $17 on the domestically 
produced Fiats; on this, see ''United States 
Policy Toward the Common Market and the 
North Atlantic Community," a background 
paper for the Sixth Midwest Seminar on U.S. 
foreign policy, Racine, Wis., Nov. 14-16, 1963, 
Institute for World Affairs Education, Univ. of 
Wis., p. 94, 1963. 



Quantitative Restrictions 

It should be realized that the United 
States is not without blame in regard to 
the use of nontariff measures. Import 
restrictions are imposed under the statu- 
tory authority provided by Section 22 of 
the Agricultural Adjustment Act of 1935. 
This section extends protection to any ag- 
ricultural commodity or product thereof 
for which production control, price sup- 
port, or marketing programs are in effect. 
It is designed to curb the imports of such 
commodities which render ineffective or 
materially interfere with any program or 
operation undertaken by the U.S. Depart- 
ment of Agriculture. Import quotas can, 
under this law, be introduced up to 50 
percent of a base period, or fees can be 
applied in addition to regular tariffs, up 
to a limit of 50 percent ad valorem. 21 

Because quantitative restrictions are 
incompatible with membership commit- 
ments assumed under GATT, the United 
States requested permission for their con- 
tinued use. Despite the protest of other 
members, GATT granted a special waiver 
of obligations in 1955 to cover Section 22 
restrictions. 22 

Apart from direct restrictions, imports 
may also be curtailed through bilateral 
agreements. Agreements were made with 
Canada in 1953 to curb imports into the 
U.S. of oats, with Argentina and Para- 
guay in 1954 to limit imports of tung nuts 
and tung oil, and with Xew Zealand, to 
limit imports of cheese. More recently 
in an effort to bolster or to prevent fur- 
ther declines in domestic meat prices, es- 

21 For an analysis of the impact and impli- 
cations of Section 22 restrictions on U.S. im- 
ports, see Elmer L. Menzie, "Special United 
States Restrictions on Imports of Agricultural 
Products," Jour. Farm Econ. 45(5) : 1002-1006. 
1963, and Yarden Fuller and Elmer L. Menzie 
"Trade Liberalization vs. Agricultural Import 
Restrictions," Tour. Farm Econ. 46(1) :20-38. 
1964. 

" See "Basic Instruments and Selected Doc- 
uments." 3rd Supp. GATT. p. 35. 1955. 



71 



ILLINOIS AGRICULTURAL ECONOMICS, DECEMBER, 1964 



pecially of low-grade beef, the adminis- 
tration sought voluntary restraints on 
exports to this country. Under the terms 
of an agreement reached in the spring of 
1964, Australia, New Zealand, and Ire- 
land committed themselves to limit their 
1964 meat exports to the average 1962-63 
level. These limits will be enlarged by an 
annual rate of 3.7 percent during 1965 
and 1966. With respect to nonagricul- 
tural products, the United States main- 
tains quantitative restrictions on imports 
of petroleum, lead, and zinc. 

According to a recently concluded 
study, 26 percent of the value of U.S. 
agricultural production is shielded against 
outside competition by nontariff import 
restrictions. By contrast the average tar- 
iff rate on dutiable imports was 10 per- 
cent in 1959. On the basis of this crite- 
rion, the degree of protection afforded by 
France, Germany, and the Netherlands 
amounted to 94, 93, and 79 percent re- 
spectively. 23 It should be borne in mind, 
however, that such a method of compar- 
ison does not allow one to estimate the 
magnitude of trade diversion ascribable 
to the application of restrictions. Al- 
though there are differences in scope, 
type, and number of protective devices 
authorized under Section 22, its overall 
objective parallels that of the variable 
levy system of the EEC. Then too, be- 
cause of its potentially wide applicability 
the protective capacity of Section 22 ap- 
proaches that of the variable levy system. 

Invariably the application of nontariff 
import restrictions is so closely bound up 
with domestic policies of price and in- 
come support that these restrictions be- 
come an essential part of the system. As 
the U.S. and Western European experi- 
ences demonstrate the success of domestic 
price support, production and marketing 
control programs necessitate the employ- 

23 USDA, ERS, and FAS, Agricultural Pro- 
tection by Nontariff Trade Barriers. Foreign- 
60. Washington, D. C. p. 3. Sept., 1963. 



ment of import-restrictive measures. The 
nature and consequences of interdepend- 
ence between domestic and foreign trade 
policies has been the subject of much dis- 
cussion and needs no further recapitula- 
tion here. 24 

Viewed against this background it is 
not surprising why efforts in the past met 
with comparatively little success in re- 
solving agricultural trade differences. 
The establishment of Committee II in 
November 1958 marked the beginning of 
discussions and reviews of agricultural 
policies of the contracting parties to 
GATT. Specific tasks of Committee II, 
among other things, were to (a) examine 
the effect of nontariff measures for agri- 
cultural protection, (b) consider the ex- 
tent to which the existing rules of GATT, 
and their application, have proved in- 
adequate, and (c) suggest procedures for 
further consultations among all contract- 
ing parties on agricultural policies. 25 

Committee II expressed concern over 
the degree and extent of agricultural 
protectionism, the widespread resort to 
nontariff devices, and the serious effect 
which those devices had on international 
trade in agricultural products. 26 These 
issues became the starting point for 
further negotiations through the newly 
established GATT committees for cere- 
als, meat, and dairy products. Among 
them the Cereals Committee, consisting 
of representatives of Australia, the 
United Kingdom, Argentina, Canada, the 
EEC, and the United States, commenced 

24 See, for example, D. Gale Johnson, "A 
Sound Trade Policy and Its Implications for 
Agriculture;" and Lawrence Witt, "Trade and 
Agriculture Policy," The Annals of the Ameri- 
can Academy of Political and Social Science. 
Agricultural Policy, Politics and the Public 
Interest, pp. 1-13. Sept., 1960. 

2:1 For further elaboration on these points, 
see "Basic Instruments and Selected Docu- 
ments," 7th Supp. GATT, Geneva. 1959. 

26 For more details, see "Trade in Agricul- 
tural Products," 2nd and 3rd Rpts. Committee 
II. GATT, Geneva, pp. 18-26. 1962. 



TRADE LIBERALIZATION: ISSUES AND IMPLICATIONS 



73 



discussion in June, 1963, aimed at the 
development of international agreements 
covering world trade in cereals, the set- 
ting of domestic prices, and production 
goals. The codifying and harmonizing 
of EEC regulations pertaining to rice, 
dairy products, beef, fats, and oils, may 
speed progress toward these goals. 

International Commodity Agreements 

The negotiations contemplated under 
GATT auspices (Kennedy-Round) are 
expected to place increased emphasis on 
international commodity agreements as 
a means of facilitating the long-range 
growth of world trade. Specifically ef- 
forts will or should be directed to (1) 
negotiate a guaranteed access to a share 
of the world market, together with a 
share of its growth, (2) stabilize prices 
of agricultural commodities and reduce 
the discrepancy between domestic and 
world market prices, (3) establish pro- 
duction goals, (4) prevent the dumping 
of farm commodities by major exporters, 
and (5) find ways and methods by which 
agricultural surpluses can make their 
most constructive contribution to eco- 
nomic development. These various ob- 
jectives tend to reinforce each other. The 
first problem to be faced concerns agree- 
ment over an equitable basis or formula 
for determining what each exporter's 
initial quota or share in the market 
should be and how to adjust the quotas 
over a period of time. This consideration 
is especially important for the United 
States which proposes that market shares 
should be set in conformity with the level 
of imports prevailing in a recent repre- 
sentative period. 

The goal of international price stability 
implies benefits and responsibilities for 
both net-importing and net-exporting 
countries. It protects domestic agricul- 
ture against the unlimited entry of com- 
peting imports at prices which would 



disrupt the orderly conduct of national 
agricultural policies. Also, it enables the 
importing countries to achieve a greater 
measure of independence from price var 
iations emanating from abroad, which lie 
beyond their control. Yet, it should be 
recognized that interference in the price 
mechanism distorts existing price dif- 
ferentials and thereby affects the inter- 
national competitive position of partici- 
pants' exports. 

Ideally, of course, prices should be set 
at levels that would guide production and 
consumption towards an equilibrium. The 
general welfare can be improved only if 
a country or region diverts resources into 
the production of commodities in which 
it has the greatest comparative advantage, 
and accepts imports of those commodities 
in which it has the least comparative ad- 
vantage. For the latter group of com- 
modities, and over a transitional period, 
a system of deficiency payments of in- 
come support would be more appropriate 
than one based on direct price supports. 
The main advantage of this system would 
be that it involves a minimum of inter- 
ference with the normal operations of 
the market forces in the importing coun- 
tries, and with the patterns of trade. 
Also, in view of year-to-year variation in 
crop production a price policy directed 
mainly towards stabilization will be in- 
effective in guaranteeing farmers an as- 
sured income level. This raises the ques- 
tion of whether the objective of price 
stability is reconcilable with objectives of 
income parity and efficiency of produc- 
tion. It is beyond the scope of this paper, 
however, to elaborate on this and other 
ramifications entailing price decisions. 

Perhaps of equal or even greater im- 
portance than price decisions is the ques- 
tion of production controls or marketing 
quotas. Unless price support programs 
are combined with some form of supply 
management there will be an incentive 



74 



ILLINOIS AGRICULTURAL ECONOMICS, DECEMBER, 1964 



to greater production, and with it the 
emergence of surpluses which are or 
promise to be unsalable in the commercial 
market. Aside from the effects of price 
policies, agricultural productivity and out- 
put are expected to increase due to the 
accelerated application of new technol- 
ogy. 27 The deficiency of a system of 
multilateral commodity agreements lack- 
ing production or marketing controls 
would presumably resemble that attrib- 
uted to the International Wheat Agree- 
ment. 28 In short, the success of such 
commodity agreements will hinge in an 
important degree on (a) the production 
responses in countries that are partners 
to the agreement, (b) the emergence of 
new low-cost supplies, and ( c) concerted 
international action toward an optimum 
disposal of surpluses through noncom- 
mercial outlets. 29 

While there has been some improve- 
ment in the world food situation, the dif- 
ferences among countries in the level of 
calorie intake and the nutritional quality 
of diets are still striking. This concern 
found widespread recognition by the 
launching of the ''Freedom From Hun- 
ger Campaign" in 1960 and the World 

2 ' See Joint Economic Committee, "Food and 
People." U.S. Govt. Print. Office, Washington, 
D. C. pp. 9-12 and 37-41. 1961. 

2S For a discussion of problems inherent in 
various types of international commodity ar- 
rangements, see Helen C. Farnsworth, "Inter- 
national Wheat Agreements and Problems," 
Quar. Jour. Econ. 70(2) :217-248, 1956; and 
Boris C. Swerling, "Problems of International 
Commoditv Stabilization," Amer. Econ. Rev. 
53(2) :65-74. 1963. 

29 See Willard W. Cochrane, Arthur B. 
Mackie, and Grover C. Chappel, "Potential 
Uses of Farm Products as Aid to Developing 
Countries." Jour. Farm Econ. 45(5) :961-973. 
1963. For some novel ideas relating to the 
nature and scope of U.S. food disposal pro- 
grams and their coordination with those of the 
FAO, and other countries acting independently, 
see J. S. Hillman, "Suggested Modifications in 
Public Law 480," a paper delivered at the 
Annual Meeting of the Western Farm Eco- 
nomics Association, Laramie, Wyoming, Julv 
26, 1963. 



Food Program in 1963 under the aus- 
pices of the United Nations. Both pro- 
grams call for multilateral efforts to deal 
with hunger and malnutrition afflicting 
large segments of the world's population, 
and both regard food aid as an essential 
ingredient in furthering economic devel- 
opment. 30 

The World Food Program encom- 
passes three activities - — to provide emer- 
gency food assistance, to support special 
feeding projects such as those operated 
by schools and hospitals, and to under- 
write economic and social development 
schemes. The highest priority is accorded 
to programs facilitating agricultural de- 
velopment and the creation of social over- 
head capital. In this domain, preference 
is given to labor-intensive work projects 
in which part of the wages are given in 
food. 31 

Disregarding the question of compara- 
tive efficiency between food and other 
forms of assistance as means of sustain- 
ing or accelerating economic growth, the 
institution of joint surplus- disposal pro- 
grams would convey a higher measure of 
continuity to the recipients than if sepa- 
rate programs were maintained by indi- 
vidual countries. Clearly the administra- 
tion of such programs requires that eligi- 
bility for food aid be made subject to 
systematic reviews, and terminated wher- 
ever it is found that the recipients are 
able to procure their requirements on a 
commercial basis. 

The U.S. Position 

The negotiating position of the United 
States as articulated by leading govern- 
mental spokesmen seeks to strike a bal- 
ance between the legitimate objectives of 

30 See Oris V. Wells, "Thirteenth General 
Conference of IFAP. FAO's Campaigns and 
Programs Can Advance IFAP Aims." World 
Agriculture 12(2/3) :5-8. 1963. 

31 See A. H. Boerma, "The World Food Pro- 
gram : Situation and Outlook." World Agri- 
culture 12(2/3) :9-13. 1963. 



TRADE LIBERALIZATION: ISSUES AND IMPLICATIONS 



75 



the EEC and the traditional interests of 
the exporting countries. 32 Specifically the 
points at issue revolve around maintain- 
ing and expanding market opportunities 
for temperate-zone exports, international 
cooperation and coordination of efforts 
for carrying reserve stocks of wheat and 
feed grains, and the sharing of food 
aid responsibility to underdeveloped na- 
tions. 33 

In order to assure continuing access to 
commercial markets the United States 
proposes application of the linear 
reciprocal tariff cutting principle on agri- 
cultural products burdened with fixed 
import duties, placing of ceilings on vari- 
able levies, and restrictions on the im- 
position of minimum prices now widely 
used in the EEC. 34 Agricultural trade 
liberalization may be pursued jointly with 
or independently of industrial items. 
When tariffs on agricultural commodities 
pose the major barriers to international 
trade they should be handled together 
with industrial products and reduced on 
a reciprocal basis. Further, the U.S. plan 
recommends that appropriate steps be 
taken to modify, eliminate, or avoid the 
use of nontariff barriers that impede 
trade. Much importance is attached to 
developing international commod- 
ity agreements combined with market- 
sharing arrangements and the stabiliza- 

32 In particular, Secretary of Agriculture 
Orville L. Freeman outlined the basis of a 
policy in his address to the European- American 
Symposium on Agricultural Trade in Am- 
sterdam, Nov. 15, 1963 (see "European Com- 
munity,"' No. 67, Nov.-Dec, 1963, p. 4), and 
in a statement (see "Foreign Agriculture" 
including Foreign Crops and Markets 2(8) :3-4. 
1964). 

33 In reference to stockpiling, the proposal 
calls for the establishment of national food 
banks serving to stabilize supply. 

34 While fixed import duties are the prevalent 
form of protection used by the major trading 
countries, at present EEC maintains them on 
tobacco, vegetable oils, and canned fruits. By 
contrast, grains and livestock products are 
covered by the variable levy system. 



lion of world prices. Negotiations for 
such agreements already are in progress 
for cereals, meat, and dairy products. 

The achievement of these objectives, 
among others, requires that national and 
regional agricultural policies be subjected 
to international scrutiny and negotiation. 
The apparent disposition of the United 
States to bargain with other nations on 
matters of domestic farm policies and to 
assume reciprocal commitments repre- 
sents a major departure from previous 
trade negotiating postures. It seems to 
be predicated on the recognition that 
new and multilateral techniques must be 
found in order to provide for the needed 
future expansion of agricultural trade 
and better utilization of agricultural sur- 
pluses. Progress in this area will depend, 
to a considerable extent, upon U.S. will- 
ingness to offer concessions on restric- 
tions maintained under the authority of 
Section 22 of the Agricultural Adjust- 
ment Act, for which it received a waiver 
of obligations from GATT. 

In view of the urgency of restoring bal- 
ance in U.S. international payments, the 
development of a formula providing for 
a greater sharing of the burdens of 
foreign assistance is receiving high pri- 
ority among policy considerations. Al- 
though a number of steps have been 
taken to cut down spending abroad and 
to assure that an increasing share of 
foreign assistance appropriations is being 
spent on domestic goods and services, it 
is felt that they are inadequate to remedy 
the situation. 35 Measured in terms of 
defense expenditures, those made by the 
United States are about three times the 
combined outlays of all other NATO 

35 On these points, see Joint Economic Com- 
mittee, "The United States Balance of Pay- 
ments — Perspectives and Policies." U.S. Govt. 
Print. Office, Washington, D. C, 1963, pp. 33- 
60; and Hal B. Lary, "Problems of the United 
States as World Trader and Banker," Nat. Bur. 
Econ. Res., New York, 1963, Ch. 4. 



76 



ILLINOIS AGRICULTURAL ECONOMICS, DECEMBER, 1964 



countries. When a comparison is made 
on the basis of the proportion of GNP 
allocated to foreign aid, the United States 
falls behind France and Portugal. 36 
Apart from balance of payments difficul- 
ties, the demand for a more equitable 
sharing of the foreign assistance burden 
(greater contribution by several leading 
industrial countries) gained momentum 
from their spectacular economic advance 
scored during the postwar period. 

It must be remembered also that by 
virtue of economic integration the politi- 
cal and economic weight of Western 
European countries in general, and those 
of the EEC in particular, became larger 
than the sum total of their individual 
members when acting in isolation. Con- 
sequently member countries' national as 
well as regional policies have implica- 
tions extending beyond their own bound- 
aries. This consideration, it is hoped, will 
transcend attitudes of member countries 
as they accept their responsibilities in 
shaping the course of world trade and the 
pace of economic development of the 
underdeveloped countries. 

Summary and Implications for Research 

The negotiations and confrontations 
carried on through the conferences 
sponsored by the United Nations and 
GATT represent a new phase in the con- 
tinued quest for freeing and expanding 
international trade and speeding up the 
economic development of countries that 
export primary commodities. The emer- 
gence of regional economic trading blocks 
gives new urgency to market access ar- 
rangements on terms acceptable to both 
tropical and temperate-zone agriculture. 

In pursuit of these objectives the 
temperate-zone exporting countries, in- 

36 For a comparison of the relative contribu- 
tions to defense and economic assistance of the 
United States and other countries in terms of 
GNP, see Joint Economic Committee, op. cit., 
p. 50. 



eluding the United States, are calling for 
(1) abandonment or moderation of poli- 
cies of domestic self-sufficiency that 
threaten to destroy traditional patterns of 
world trade in agricultural products, (2) 
development of market access and shar- 
ing arrangements on the basis of 
international commodity agreements, (3) 
application of the linear tariff cutting pro- 
cedure on agricultural products, and (4) 
institution of joint economic development 
schemes encompassing both food and 
other forms of assistance. 

The underdeveloped countries which 
export primary commodities are press- 
ing for (1) international commodity 
agreements and compensatory measures 
to offset fluctuations in trade, (2) broad- 
ening of the range of negotiable non- 
tariff barriers to trade, with special ref- 
erence to internal fiscal charges and 
import duties applied against noncom- 
peting products and quantitative restric- 
tions on manufactures, (3) strengthening 
the retaliatory capacity of Article xxiii 
of GATT against the possible nullifica- 
tion or impairment of tariff concessions 
by way of nontariff barriers, and (4) 
arrangements that lead to improvement 
of the terms of trade between the coun- 
tries that export primary goods and those 
that export industrial goods. 

Moreover, it is necessary to emphasize 
that the countries exporting primary 
goods must pay greater attention to the 
question of international specialization 
and diversification in their industrializa- 
tion policies. 

The main question that emerges from 
the foregoing review and appraisal of 
professed objectives and aspirations of 
the two categories of countries is the 
efficacy of means to be employed toward 
their achievement. Any decision or com- 
mitment in this matter must be made 
conditional upon a systematic and coor- 
dinated study of the basic issues involved, 



TRADE LIBERALIZATION: ISSUES AND IMPLICATIONS 



77 



the potentialities of the existing - institu- 
tional facilities, and the desirability and 
appropriate form of proposed changes in 
institutional arrangements. In this con- 
text three research areas are distinguish- 
able: (1) the scope, form, and auspices 
under which existing or any new inter- 
national commodity agreements scheme 
should operate, (2) ways and means 
to liberalize interregional trade, and (3) 
formulation of action programs contrib- 
uting to an accelerated and self-sustained 
economic growth of underdeveloped 
countries. 

The international commodity agree- 
ments approach poses several questions 
and challenges to the researcher, includ- 
ing (1) the choice of the particular 
operational techniques among (a) multi- 
lateral long-term contracts for the pur- 
chase and sale of commodities, (b) 
international export quotas for the 
restriction of market supply, and (c) 
buffer stock agreements; (2) providing 
better understanding of the causes and 
consequences of instability in primary 
commodity markets; (3) devising criteria 
for allocating market shares, enforcing 
compliance with assumed contractual ob- 
ligations, and achieving the widest possi- 
ble adhesion to the agreements; (4) the 
choice of international compensatory 
measures to offset fluctuations in com- 
modity trade; and (5) the sharing of 
the fiscal burden of surplus disposal and 
direct intervention in commodity mar- 
kets. 

The success of trade liberalization ef- 
forts depends upon the initiation of 
studies that provide (1) information on 
the nature and extent of economic, politi- 
cal, and social motives inspiring the 



pursuance of protectionist national and 
regional policies, (2) identification of in 
cipient and actual structural maladjust- 
ments in individual commodity markets, 
in both temperate and tropical zones, and 
the factors causing them, (3) greater 
knowledge about prospective trends in 
demand and supply for individual com- 
modities in both the net-importing and 
net-exporting countries, and (4) esti- 
mates of the amounts of trade expansion 
expected with the removal of tariff and 
nontariff obstacles maintained by the 
leading import countries. 

The formulation of appropriate and 
effective international measures for stim- 
ulating the economic advancement of 
underdeveloped countries calls for stud- 
ies oriented toward (1) the identification 
of principal obstacles to economic growth, 
(2) an appraisal of the nature and de- 
gree of interdependence among the pace 
of internal economic growth, the level 
and pattern of exports, and the rate of 
increase in import demand of the under- 
developed countries, (3) the establish- 
ment of order of priorities in the pro- 
motion of import-substituting and ex- 
port-expanding industries, and (4) the 
optimum division of developmental tasks 
among private and public enterprises, 
both foreign and domestic. 

In conclusion it is recognized that the 
suggested research areas are somewhat 
arbitrary and are also confined to only 
a few specialized aspects of international 
trade. Owing to the high degree of 
interdependence existing among various 
sectors of the international economy, an 
alternative and equally plausible set of 
priorities for areas of research could be 
proposed. 



78 



ILLINOIS AGRICULTURAL ECONOMICS, DECEMBER, 1964 



Estimating Export Potentials for U. S. 
Agricultural Products 1 

T. A. HIERONYMUS 
Department of Agricultural Economics, University of Illinois 



My assignment departs 

somewhat from the context of this con- 
ference. We now turn our attention 
from the place of agriculture in the de- 
velopment of economically less-developed 
countries and areas to the mundane mat- 
ter of how to sell more U.S. agricultural 
products abroad. The conference theme 
has an aura of missionary-like service 
about it, while my topic is a strictly com- 
mercial one. If I did not feel an obliga- 
tion to stay within reasonable range of 
my topic, it would be interesting to argue 
that U.S. efforts in export market de- 
velopment may be more useful in the 
development process than some of the 
more direct development activities as 
they are currently practiced. 

Studies of potential exports of U.S. 
agricultural products are useful activities 
of research workers at agricultural ex- 
periment stations, in the USDA, and in 
commercial firms engaged in processing 
and exporting. The importance of ex- 
port markets to U.S. agriculture has 
already been pointed out. The develop- 
ments in exports, in terms of the kinds 
of products and their destinations, are 
quite dynamic. The professional econ- 
omist can certainly be useful in suggest- 
ing future developments and in guiding 
the sales activities of commercial firms. 

The finding of markets and short-term 
sales activities are responsibilities of 
commercial firms. Their salesmen can- 
vass the markets thoroughly and com- 
petently. The United States has been an 
agricultural export nation throughout its 

1 The author's comments have been influ- 
enced by a recent trip to Japan under a grant 
from the Agricultural Development Council, 
Inc. 



history. A large group of competent 
export firms was developed a long time 
ago. We are not talking about a new or 
neglected area. 

The first area of contribution of the 
professional economist is in guiding 
capital investment in export activities. 
The investment of capital involves the 
prospects for its recovery, and this re- 
covery requires time. The longer-term 
export prospects are important in invest- 
ment decisions. Longer-term export po- 
tentials are many faceted and complex. 
The analytical tools and judgments of 
economists can be useful in making 
capital investment decisions. 

A second way in which studies made 
by economists are useful has to do with 
the rather high regard in which publicly 
employed people, such as professors and 
government employees, are held in many 
countries of the world. Part of market 
development consists of influencing 
changes in recipient countries. Sugges- 
tions for changes, both in governmental 
activities and technical processes, are 
often better taken if made by a professor 
than if made by a representative of a 
commercial firm attempting to open up 
a market. Specifically, if I suggest that 
the addition of vitamin B-12 would im- 
prove Japanese soybean meal (which 
relates to potential exports of U.S. soy- 
beans and corn) the suggestion is more 
apt to be acted upon than if it is made 
by a vitamin salesman. This is not to 
say that my suggestions have more merit 
— the opposite may be true. The sug- 
gestions of a professional economist with 
regard to agricultural policy, or compara- 
tive advantage in production of specific 



EXPORT POTENTIALS FOR U.S. AGRICULTURAL PRODUCTS 



79 



crops, carry more weight than similar 
suggestions made by commercial repre- 
sentatives. 

What I really want to emphasize is 
that the course of economic events is 
influenced by research activities, and in 
view of the large potential returns from 
increased sales in relation to the cost of 
studies, such studies should be made. 

Specific Studies 

Studies of agricultural export poten- 
tial, if they are to be effective in stimu- 
lating exports, must deal with specific 
topics. An example might be "The 
Potential Export of U.S. Corn to Japan 
for Use in Livestock Feeding." Such a 
study could serve as a basis for action by 
commercial firms. This is not to suggest 
that individual studies should be made 
without regard to others. Many of the 
measurements needed in making a study 
of exporting corn to Japan for feed also 
need to be made in a study of soybean 
meal to Japan for feed. Similarly, some 
of the factors affecting corn to Japan 
for feed also affect corn to Belgium for 
feed, or, for that matter, to Jamaica. 

The key point is that studies of export 
potential need to be sufficiently specific 
to provide a basis for action by commer- 
cial firms. It must be kept in mind that 
firms sell and export individual lots of 
a commodity and that firms buy and 
import individual lots of a commodity. 
Both sides of each transaction intend and 
expect to make a profit. The people in- 
volved' act on research results. If re- 
search results are to be meaningful, they 
must be specific enough to be useful to 
individual firms. 

The Scope of the Task 

If we impose the requirement of being 
specific, we outline a very big task for 
people and institutions engaged in re- 
search regarding export potential. Count- 



ing countries in the world today is not 
a very rewarding exercise — the number 
and identity seems to change fairly 
rapidly. Similarly, many different com- 
modities of agricultural origin move in 
international trade, and while we can 
group a fairly high proportion of U.S. 
agricultural exports into a few groups, 
we always end up with a large "other" 
category that includes many products. 
We can also isolate a relatively few 
countries that take a fairly high propor- 
tion of the total U.S. agricultural exports, 
but again we find a rather large "other 
destinations" category left over. 

The multiplicity of commodities and 
destinations makes the size and complex- 
ity of analyzing and describing the 
export market potential for U.S. agricul- 
tural products readily apparent. The 
total job is huge. 

Some kind of meaningful grouping can 
be made. Two lines of studies immedi- 
ately become apparent. First, studies of 
potential outlets for a commodity or 
group of commodities can be made for 
all of the major destinations. That is, 
one works from the orientation of the 
economics of a commodity group. We 
have people who know a great deal about 
the economics of edible fats and oils, or 
manufactured dairy products, or wheat, 
or cotton, etc. They can thus most effec- 
tively study the potential outlets for a 
commodity. Second, the potential im- 
ports of U.S. agricultural products by a 
specific country or area can be examined. 
Such topics as "Japan As a Potential 
Market for U.S. Agricultural Products" 
are appropriate. Many other names such 
as Pakistan, Spain, or the European Eco- 
nomic Community can be substituted for 
Japan. One thus becomes a country or 
area specialist and proceeds from such 
an orientation. 

It is readily apparent that the com- 
modity specialist must expand his knowl- 



80 



ILLINOIS AGRICULTURAL ECONOMICS, DECEMBER, 1964 



edge to include the internal demand 
structure of the recipient countries. 
Similarly, it is readily apparent that the 
area specialist must expand his knowl- 
edge to include the technical aspects of 
commodities in that area. 

Thus, studies of market potential must 
encompass two broad areas: the eco- 
nomics of individual commodities and 
commodity groups, and the economics of 
the demand structure of recipient coun- 
tries. It seems to me that there is a 
strong case to be made for some kind of 
group approach and for a series of con- 
tinuing studies in these two areas. If one 
research worker undertakes and reason- 
ably well completes a study of the poten- 
tial export of vegetable oils to Turkey, 
he will have left over a large amount of 
knowledge about vegetable oils that can 
be used in exploring vegetable oil export 
potential to other countries and areas, 
and a large amount of knowledge about 
Turkey that can be used in examining 
the potential export of other commodities 
to Turkey. 

With these comments I am emphasiz- 
ing the need for a major and continuing 
effort in export market potential so that 
full advantage can be taken of the 
knowledge accumulated from individual 
studies. Actually, the need has long been 
accepted, and lines of work have been 
initiated. The Illinois Agricultural Ex- 
periment Station has maintained a major 
line of work in this area, supported with 
substantial resources, for a number of 
years. Other experiment stations have 
worked in the area. Trade groups, such 
as the Nebraska Wheat Commission and 
the Soybean Council of America, have 
worked on market potential. The 
Foreign Agricultural Service (including 
its earlier names such as The Office of 
Foreign Agricultural Relations) has 
maintained a continuing and major effort 
in this work, and is currently contribu- 
ting major resources. 



Thus it seems that much information 
has been accumulated, that useful spe- 
cific studies are being made, and that 
many more specific studies can be made 
at relatively low cost. 

The Process of Specific Studies 

I believe that the most effective spe- 
cific studies are made by putting a com- 
modity specialist or team of commodity 
specialists inside a country for a careful 
look at the market potential for a com- 
modity or commodity group. After some 
experience, both in direct participation 
and from reading a substantial number 
of reports, I have arrived at a four-step 
process that can be followed in making a 
study: (1) establishing a frame of ref- 
erence, (2) preparation in advance of 
travel, (3) on-the-ground observation, 
and (4) summarization and conclusion. 
Let us briefly consider each of these 
steps. 

Framework of Reference 

The central question is: "What will the 
export volume of blank to blank be 
during the next several years, and what 
action can be taken to influence the 
quantity upward?" The answer to this 
double-barrelled question must be sought 
within the context of a set of factors 
affecting the imports of a commodity or 
commodity group from the United 
States. I like to list five factors: 

The demand structure. How large 
the demand is and will be depends upon 
several things. First, and most obviously, 
population plays an important role in 
demand and demand change over time. 
Demand for agricultural products and 
population change are positively related. 
Second, and generally more important 
than population, is income. People buy 
things with income; thus, the larger 
their incomes, the greater their pur- 
chases. The third demand factor is in- 
come expenditure preferences. 



EXPORT POTENTIALS FOR U.S. AGRICULTURAL PRODUCTS 



81 



The price elasticity and income elas- 
ticity of demand are major factors affect- 
ing demand. I wish to stress this point 
because of the great variability among 
countries. Observations made in the 
United States cannot be applied to other 
areas. Similarly, I distrust observations 
of demand elasticities made in other 
countries by the methods currently in 
vogue in the United States. What people 
elect to spend their incomes on varies 
greatly with nutritional levels, income 
levels, rates of income changes, and tra- 
ditional dietary pattern. At less than 
subsistence levels the income elasticity 
of the demand for basic foods such as 
rice, wheat, and the root crops is great. 
As the subsistence level is crossed, the 
income elasticity of demand for basic 
foods decreases quickly and the income 
elasticity of demand for the preferred 
food ■ — ■ generally of animal origin — in- 
creases and generally appears to be high. 
Rapidly changing incomes appear to re- 
sult in different income elasticities of 
demand than to slowly changing income 
levels. 

The investigator should take a mini- 
mum of traditional U.S. concepts of 
price and income elasticity of demand 
with him as he goes into the demand 
structure of another country. 

One thorny problem in dealing with 
income expenditure arises from the tra- 
ditional consumption patterns in other 
countries. In looking at food consump- 
tion, the investigator quickly encounters 
statements about local tastes, traditions, 
religious teachings, etc., which result in 
stable patterns that are difficult, if not 
impossible to change. I think that such 
tendencies are overstated. Tastes in food 
are more absolute than is generally 
thought. For example, the Japanese 
people are changing, as incomes permit, 
from miso and rice to prepared cereals, 
toast, and bacon and eggs for breakfast. 
This is not an insidious western influ- 



ence, but rather an absolute difference 
in quality. The same choice would be 
made in Illinois, Moscow, or Nigeria. 

The same problems are encountered 
in choices made between food and non- 
food expenditures. Such choices are de- 
pendent on many factors peculiar to the 
local situation. They are subject to avail- 
abilities of competing products, relative 
prices, and credit availability as well as 
community standards and traditions. As 
in the case of food, I think that basic real 
income expenditure preferences are quite 
universal. 

Marketing arrangements. The avail- 
ability of a food distributing and mer- 
chandising system is an important 
consideration in the size of the market 
for food. If processing, transportation, 
and retailing facilities are not available, 
or are available only at high cost, the 
potential market for agricultural products 
cannot be exploited. The speed with 
which a potential market will materialize 
depends, in part, on the speed with which 
marketing arrangements are developed. 

In this same category of marketing 
arrangements, I would include a lot of 
agricultural technology. For example, 
the food demand structure of Japan indi- 
cates a continuing rapid expansion in 
imports of the raw materials for live- 
stock products, specifically feed grains 
and soybean meal. The exploitation of 
this demand requires the application of 
new technology to mixed feed formula- 
tion, and to broiler, egg, pork, and milk 
production. The technology is largely 
known. It has to be taught and capital 
has to be invested. The cursory exami- 
nation of this sector of the Japanese 
economy that I recently made suggests 
a rapid implementation of technology, 
hence market growth, during the years 
immediately ahead. A similar examina- 
tion in a different place might (and prob- 
ably would) lead to a different conclu- 
sion. 



82 



ILLINOIS AGRICULTURAL ECONOMICS, DECEMBER, 1964 



Agricultural protection. Throughout 
most of the world, farmers occupy a 
favored political position. There are sev- 
eral reasons for this: their incomes are 
relatively low; they have disproportionate 
representation in government; nations 
wish to protect food supplies with large, 
indigenous production; nations wish to 
protect exchange balances by keeping 
agricultural imports low; and rapid out- 
movements of people from agriculture 
are politically and economically un- 
settling. 

Agricultural protectionism of other 
countries works two ways with regard 
to U.S. agricultural exports. First, it 
holds resources in agriculture that would 
otherwise be priced out of agriculture, 
thus increasing competition for U.S. 
products. Second, it usually holds food 
prices high which in turn retards con- 
sumption, particularly in the shifts to 
preferred foods. This second factor may 
be avoided by direct subsidies to farmers, 
although this is not a generally preferred 
method because the cost is readily ap- 
parent. 

Trade position and policy. Many na- 
tions are plagued by balance-of -payment 
problems. Also many nations use selec- 
tive import restrictions and taxes to 
affect the kinds of goods that are im- 
ported. Such restrictions are designed 
to balance export and import trade and 
to channel imports into capital goods and 
raw materials for manufacture and re- 
export to the maximum extent possible. 
Restrictions are thought to accelerate 
economic development. 

In actual practice, import restrictions, 
currency regulations, and export stimu- 
lation become a blend of protection for 
selected groups, necessary extensions of 
internal monetary and fiscal policies, and 
deliberate programs for economic de- 
velopment. Certainly they are important 



factors in the amount of U.S. agricul- 
tural products imported. 

Competing supplies. The amount of 
U.S. products that can be exported to a 
given country depends in part on the 
supplies available to that country from 
both internal and third party sources. 
In the short run, domestic supplies have 
an almost unbeatable advantage. In the 
longer run, the competitive positions of 
the United States and the destination 
country with regard to a particular com- 
modity should determine the amount of 
imports. This competitive adjustment is 
usually affected by import-export regu- 
lations and internal subsidies. The per- 
sistence with which destination countries 
will lose money on agricultural support 
is a key factor in the rate of adjustment 
to the real competitive situation. 

Because the United States is the sole 
exporter of few, if any, commodities, 
competition from third parties must be 
evaluated. Quantities available and the 
competitive production conditions be- 
tween the United States and other sup- 
pliers are not the only factors to be taken 
into account in appraising competition. 
There are quality differences that are 
sometimes quite subtle. For example, 
the Japanese are sensitive to the depth 
of color of yellow corn. They think that 
the darker corn results in darker yolks 
of eggs when fed to hens, and this is a 
consideration that must be taken into 
account in market appraisal. 

The reliability of delivery dates and 
ease of contract settlement are also 
factors in choosing suppliers. 

The trade position of the recipient 
country with the various available suppli- 
ers may be a factor in the choice of 
sources. In this world of imperfect cur- 
rency convertibility, buying countries 
sometimes influence purchases toward 
those countries to whom they wish to ex- 



EXPORT POTENTIALS FOR U.S. AGRICULTURAL PRODUCTS 



83 



panel sales. All other things being equal, 1 
think that Japan would prefer to buy 
corn from Thailand than from the United 
States. 

Advance Preparation 

The success of a study of export 
potential in a particular country is 
largely determined by the amount and 
quality of advance preparation. This is 
an often neglected part of a specific 
study. The researcher should study first 
and look later, rather than the other way 
about. 

Thorough advance preparation serves 
two purposes: it serves as a guide to 
what the researcher should do in the 
subject country or area, and it greatly 
improves the quality of the discussions 
that he has with people in the subject 
country. 

To a considerable extent it is easier to 
study a country from a distance than 
from close at hand, particularly for those 
of us who are literate in only one lan- 
guage. It is sufficiently difficult to get 
about in a strange country and see the 
appropriate people without adding the 
burden of having to do an extensive 
amount of collecting statistics and refer- 
ence material and identifying the proper 
contacts as well. Study is more com- 
fortable and effective at home. 

The quality and amount of informa- 
tion that can be obtained in an interview 
is increased if it is clear that the inter- 
viewer knows the facts about the subject 
at hand and is probing for implications. 
The job is difficult and far less produc- 
tive if the interviewer must have the 
factual situation described and has not 
had an opportunity for prior thought 
about implications. If the researcher has 
done his homework so that he can meet 
the subject of the interview at his own 
level, meaningful answers can be ob- 
tained and time saved. The implications 



of an import allocations policy is a better 
subject for discussion than is a descrip- 
tion of an import allocations policy. 
Prior knowledge is more meaningful and 
adds more to responsiveness in foreign 
countries than it does at home. 

Advance preparation can be divided 
into three general categories. First is the 
collection of pertinent statistical data. 
Second is the extensive reading of de- 
scriptions, studies, etc., regarding the 
production and utilization structure of 
the commodity in question, demand, in- 
stitutional arrangements, agricultural 
production policy, and international trade 
policy. 

If these two things are done thor- 
oughly, it would be entirely possible to 
establish hypotheses and draw inferences 
without going inside the country at all. 
When the researcher is prepared to write 
his report, he is ready to go abroad. 

The third category is the developing of 
an outline specifying people to see and 
places to visit. Previous preparation will 
suggest the kinds of people and places 
desirable. Identities of people in trade 
associations, firms, governmental posi- 
tions, and universities are readily avail- 
able. In this connection, a sponsoring 
agency is of particular value. These lists 
should be kept flexible and can be 
evolved as the study proceeds, but a 
fairly complete list should be in hand 
before departure. 

On-the-Ground Observation 

The trip abroad should be primarily 
devoted to talking to people and seeing 
things. Supplementary data and infor- 
mation can be collected to fill in the gaps 
left in the advance preparation process. 

The interview process is primarily one 
of clearing up questions, of seeking opin- 
ions about factors affecting market de- 
velopment, and examining the prospects 
for market expansion. This process 



84 



ILLINOIS AGRICULTURAL ECONOMICS, DECEMBER, 1964 



should lead to reasonable conclusions 
about rates of market expansion. 

Throughout the ground study, the re- 
searcher should particularly look for 
actionable factors affecting the rate of 
market expansion. These are the "if's" 
— the things about which one can say 
"if this is changed, then . . ." The most 
important results of market potential 
studies stem from the identification of 
things that can be changed and, if 
changed, will affect export potential. 
Such factors come to the surface quite 
readily if a good rapport is established 
with the people contacted. Nearly every- 
one has an axe to grind, and the problem 
becomes more one of sorting than of 
finding. 

Summarize and Conclude 

The final step is to report results. 
Conclusions should be reached and 
stated almost without regard to how 
tentative and uncertain they may be, or 
how lacking in sophistication the analysis 
may be. The chances of developing a 
high level of certainty or analytical 
thoroughness are not great. Data about 
markets and analytical studies of factors 
affecting market potential are very in- 
complete in most of the world. It should 
be kept in mind that a high proportion 



of commercial decisions are made on 
quite skimpy evidence. - 

A Final Comment 

My experiences in several studies 
abroad lead me to make three final sug- 
gestions : 

(1) The assistance of a national com- 
petent in both English and the language 
of the country involved is an invaluable 
asset and more than worth the extra 

cost. 

(2) The researcher should proceed at 
a pace which allows him adequate time 
to think. We all get more or less obsessed 
with efficient use of time. There is 
danger of carrying the full-use-of-time 
notion to the point where there is only 
little absorption of the implications of 
what one has heard and seen. 

(3) Keep an open mind. Things work 
differently in different places, and that 
which appears unreasonable by U.S. 
standards may be quite reasonable when 
put in the context of the subject country. 

We all take our own notions about 
economic organization, the role of gov- 
ernment, cooperatives, and trade associa- 
tions, and trade policy, income distribu- 
tion, etc., with us. Some of these "stand 
up"' and some do not when they are put 
in the context of a different country. 



INFLUENCE OF RURAL INSTITUTIONS ON DEVELOPMENT 



85 



Influence of Rural Institutions 
on Economic Development 



DAVID E 
Department of Agricultural 

My assignment in this con- 

ference is to identify research tasks re- 
lating to the influence of rural institutions 
on economic development. To do so, one 
must first define "rural institutions" so 
that their influence on economic develop- 
ment may be assessed, positively or nega- 
tively. As for economic development, 
one may assume that this process en- 
compasses all aspects that add to the 
accumulation of wealth, including invest- 
ments in wealth-producing facilities and 
the exploitation of natural resources for 
the production of wealth. Such institu- 
tions include all of the social systems, 
from the family on the farm to the 
huge corporation, cooperative, or gov- 
ernmental system. 

The Meaning of "Institution" 

The definition of the term institution 
is the same whether it applies to rural 
or urban society, although an institution 
may operate differently in different 
cultures. There is no unanimity in the 
way writers use the term institution. 
Williams 1 points out that an institution 
is sometimes defined not as a complex of 
norms, but as a concrete social organi- 
zation (church, school, etc.) or as a 
broad field of activity (making a living). 

The popular notion of an institution 
is often concretized in buildings and 
what goes on in them. Williams points 
out, however, that for the individual, in- 
stitutional norms are moral imperatives, 
closely identified with his self-respect, 
and for a whole group or a society, viola- 
tion of institutional norms carries severe 
penalties. These norms, however, must 

1 Robin M. Williams, American Society. 
Alfred A. Knopf, New York. p. 30. 1960. 



LINDSTROM 
Economics, University of Illinois 

be supported by an effective consensus of 
society. They are relatively stable and 
tend to prescribe reciprocal rights and 
duties and to be enforced through desig- 
nated social functionaries. "Cultural 
norms," states Williams, "are institu- 
tional insofar as they are made obligatory 
by effective social agreement." Thus, 
the family, political institutions, educa- 
tion, economic institutions, etc., func- 
tion on the basis of norms or modes 
that regulate recurring situations. Insti- 
tutional norms are "internalized in in- 
dividual personalities, inculcated and 
strongly enforced early in life, and they 
are objects of consistent and prevalent 
authority." 

Implicit in the concept of institution, 
as used by Williams, is that of culture 
and of social organization. Culture, 
which relates to knowledges, skills, arti- 
facts, symbols, technologies, beliefs, and 
values, as well as norms for conduct, 
contains the normative standards for 
behavior. Social organization refers to 
the actual regularity of human inter- 
action, in which actions of individuals 
toward other individuals are recurrent 
and coordinated by the orientation of the 
acts of each to those of others. In this 
concept of organization, individual be- 
havior in association is predictable be- 
cause there are observable recurrent pat- 
terns of social relationships. They are 
most apparent in institutions having cul- 
tural norms that carry the elements of 
"moral imperatives," penalties for viola- 
tions, and the imposition of penalties 
by an effective consensus of the society. 

The institutional complex of any so- 
ciety is such that in this paper we can 
deal with only the most universal and 



86 



ILLINOIS AGRICULTURAL ECONOMICS, DECEMBER, 1964 



representative institutional forms in 
rural life. We must recognize that a 
great deal of research has been done on 
rural institutions, but much of it has 
been based on what might be called sur- 
face observations, such as the change in 
the composition of farm families, the 
relation of size of school to the most 
desirable size of school district or the 
most efficient type of school unit, and the 
relative influence of various forms of 
communication media on the adoption 
of farm practices. There is no implica- 
tion here that such studies have not been 
valuable. But many have been limited 
by lack of empirical hypotheses which 
would enable the researcher to make 
more valid conclusions. 

Improved research tools in sociology 
have become available, and more and 
better ones are becoming available, so 
that we can probe a bit further beneath 
the surface of social situations, make 
more accurate measures, and draw more 
valid conclusions concerning the nature 
of the phenomena and their influence 
on a changing society. 

Some Areas of Concern 
in "Developed" Societies 

The rapid changes taking place in 
agriculture and rural life in the United 
States have challenged social scientists 
to assess causes for these changes, and 
to make the kinds of findings that will 
help guide both the economic and the 
total institutional development of our 
rural society. We might briefly mention 
some of the areas of concern as a frame 
of reference for identifying concrete re- 
search areas that relate to the influence 
of rural institutions on economic devel- 
opment. 

1. Considering the image of the de- 
clining importance of agriculture, 
whether correct or not, Larson raises 
questions concerning (a) the wisdom and 



difficulty of maintaining separate insti- 
tutions for agriculture, (b) the role of 
the individual entrepreneur in the trend 
toward more advanced technology, (c) 
the effect on agricultural peoples of a 
decreasing concern with things agricul- 
tural, and (d) the influence of a growing 
rural-nonfarm segment on the family, 
the church, and other institutional forms 
in the community. 2 The information we 
have is all too meager — for example, 
information about the characteristics of 
individuals and families who are not 
mobile and yet are not making as satis- 
factory an adjustment to change, at least 
from an economic point of view, as 
would seem desirable. More probing 
research is needed to find out what new 
institutions of guidance, education, and 
control are needed to provide for ra- 
tional and desirable change and to avoid 
or overcome maladjustments. 

2. Heady and Ackerman assert that 
''today's challenge in educational activi- 
ties is to facilitate adjustments in agri- 
culture that are consistent with national 
economic growth." 3 It is important to 
learn more about the role education plays 
in economic growth. Chaparro and Allee 
point out that for some people education 
is a conservative force, its main function 
being to transmit and consolidate basic 
values and cultural traditions. It has a 
prestige value and is limited, in some 
societies, to socially selected minorities, 
and often the functions of education in 
economic and social development are 
overlooked. 4 



2 Olaf F. Larson, The Role of Rural Soci- 
ology in a Changing Society. Jour. Rural Soc. 
24(1) :6. 

3 Earl O. Heady and Joseph Ackerman, 
Farm Adjustment Problems and Their Im- 
portance to Sociologists . Jour. Rural Soc. 
24(4) :325. 

4 Alvaro Chaparro and Ralph H. Allee, 
Higher Education and Social Change in Latin 
America. Jour. Rural Soc. 25(1) :11. 



INFLUENCE OF RURAL INSTITUTIONS ON DEVELOPMENT 



87 



3. Any changes in educational insti- 
tutions must deal with the structural 
aspects of tlicse institutions, for struc- 
ture is one element that provides for 
stability, permanence, and resistance to 
change. Parsons asserts that the stability 
of the structure of the social system is 
a matter of the stability of the normative 
culture patterns of the institutions: the 
stability of the educational institution is 
related to its structure as well as to the 
value system that it supports. 5 Hence, 
if its structure operates to maintain the 
status quo, the institution is a deterring 
influence on economic development. An 
important area for study, therefore, con- 
cerns the nature of the structures sup- 
porting the educational institution and 
the influence it has on economic develop- 
ment. 

4. It is apparent that studies of the 
influence of rural institutions on eco- 
nomic development must concern them- 
selves with social change, since develop- 
ment is change. Wilkening points out in 
this connection that institutionalized 
change, present in advanced societies, is 
a long process. The concept, for exam- 
ple, of "new practices" is not a part of the 
thinking of the average Brazilian farmer. 
In general, it is not in the thinking of 
farmers of any society "characterized by 
self-sufficiency, a family-centered social 
structure, and limited participation in the 
world outside the village or locality." 6 In 
such societies farm and family are in- 
separable, and production and consump- 
tion activities are closely integrated. 

5. Economic development in agricul- 
ture is of growing concern throughout 
the world. Mosher raises some pertinent 
points when he states that "agricultural 

J Talcott Parsons, Some Considerations on 
the Theory of Social Change. Jour, Rural Soc. 
26(3) :223-224. 

6 E. A. Wilkening, Some Perspectives on 
Change in Rural Societies. Jour. Rural Soc. 
29(1) :3. 



development has both social and e< o 
nomic aspects," that "economic develop- 
ment involves the breaking of old social 
patterns as well as the emergence of new 
ones," and that "the only prime mover in 
development is the psychological drive 
ivithin persons." 7 This drive is socially 
and culturally conditioned. Mosher 
recognizes this fact — the influence of 
social values, sanctions, group action, 
and, within this framework, the effect of 
such social patterns as status, prestige, 
and social approval (or conformity) on 
agricultural development. 

We know that the influence of rural 
institutions may be either to retard or to 
enhance economic development. It is 
often inferred that rural social institu- 
tions tend to deter rather than to enhance 
economic development. Rut rural insti- 
tutions are constantly changing, and 
therefore the problem is whether the 
influence of changing rural institutions 
on economic development is to deter or 
to enhance. The task of the social sci- 
entist, then, is to determine the nature of 
changes in rural social institutions and 
their influence on economic development. 

6. In this respect, diffusion research 
that digs deeply into institutional struc- 
tures and processes is needed. An im- 
portant element in diffusion is innova- 
tiveness (which, according to Rogers, 
can be conceptualized empirically and 
used to predict human behavior). 8 Inno- 
vativeness relates to personal character- 
istics that are influenced by family, 
educational, political, religious, and other 
rural institutions. In the diffusion 
process, an innovation may be looked 
upon as that force which introduces an 
invention into a society or culture. A 
basic problem of diffusion research is to 

7 A. T. Mosher, The Sociologist in Agricul- 
tural Development. Jour. Rural Soc. 29(1) :20. 

8 Everett M. Rogers, Diffusion of Innova- 
tions. The Free Press of Glencoe, New York, 
pp. 283-291. 1962. 



88 



ILLINOIS AGRICULTURAL ECONOMICS, DECEMBER, 1964 



determine the role of the various institu- 
tional structures in this innovation 
process — why there is innovation in 
some and not in others, how innovation 
is produced, and what influence it has 
on the culture of which it is a part. Ac- 
cording to Mosher, there is a great need 
for more research of this nature, stress- 
ing the role of the person. 

Some Specific Areas in Which 
Research Is Needed 

■ An important and much neglected 
area of research by rural sociologists is 
the family institution — how families are 
changing and what forces are bringing 
about these changes. Such studies are 
important because, as has been stated, 
changes in the family institution affect 
economic development. For example, 
the Japanese farm household (the so- 
called feudal type) has been affected by 
such changes as the land reform, the out- 
lawing of primogeniture, the attraction 
of city life to the "first-born" son, and 
others. 9 These forces have brought into 
being a more democratic owner-operator 
type of farm family that is taking a keen 
interest in scientific advances in agricul- 
ture, and this change has had a signifi- 
cant influence on economic development 
in Japan. 

In the United States, not only is the 
farm family growing smaller, but there 
are significant changes in the patterns 
of authority, in family goals, family co- 
operativeness, relationships, attitudes, be- 
liefs, and values, all of which influence 
the role of various types of farm families 
in economic development. 

Family farming is still important, and 
the type of family on the family farm 
has a direct bearing on what happens in 
the production of food. Hence, more 
needs to be known about the changing 

9 K. Kamiya, Farmers' Organizations and 
Community Development in Japan. FAO 
mimeo, Rome, Ch. 1. 1963. 



social and cultural character of families 
on various types of farms. Can it be 
shown, for example, that the modern 
farm family, which is becoming indis- 
tinguishable from the city family in its 
attitudes, values, manner of living, and 
goals, will no longer consider production 
as a family function? Will this trend, in 
turn, hasten the day when farming be- 
comes entirely a matter of business, 
devoid of any element of a way of life? 
Will this change make the new type of 
farming more efficient and more produc- 
tive, from the standpoint of both the 
entrepreuner and society? Research may 
indicate that there is a point of diminish- 
ing returns in this process. 

■ Changes in the family institution are 
related also to changes in the systems of 
landholding and transfer. Since inher- 
itance is one of the chief ways in which 
youths acquire ownership of farms in 
the United States, the kinship factor, 
instead of diminishing, is increasing in 
importance in the economic development 
in agriculture. Research is needed to 
fully assess the significance of this influ- 
ence on the rate of diffusion of improved 
practices. Even tenant operation of a 
farm involves a heavy financial burden 
and quite often requires sacrifices in 
living standards that put the family at a 
disadvantage with even the small en- 
trepreneur family in the small town. Al- 
though boys on tenant farms may want 
to leave the farm, studies have shown 
that rural youth in general prefer to live 
in small communities rather than in the 
cities. 10 

The trend toward owner-operation in 
this country would indicate that there are 

10 Lee A. Burchinal, Career Choices of Rural 
Youth in a Changing Society. Univ. Minn. Sta. 
Bui. 458. p. 13. 1962. 

D. E. Lindstrom, Rural Youth Resource De- 
velopment, Univ. 111., Dept. Agr. Econ. mimeo. 
1964. 

W. H. Sewell, Community of Residence and 
College Plans. Amer. Soc. Rev. 29(1) :29. 1964. 



INFLUENCE OF RURAL INSTITUTIONS ON DEVELOPMENT 



89 



values in this type of operation. We may 
assume that this is true and that, with 
proper financing, the result would he 
greater economic efficiency and better 
living levels for the family. Thus, it 
might be worthwhile to determine 
whether establishing land values on the 
basis of appraised value would enhance 
owner-operation of family farms. (Inci- 
dentally, it might also be well to deter- 
mine the effect of the proposal for gov- 
ernment lending on this basis, with 
subsidies from the government to make 
up the difference between what the 
farmer pays and the market value. This 
is proposed as part of the President's 
program for alleviation of poverty.) 
Such studies should not stop with the 
effects on owner-operation, but should 
extend to farm family stability and the 
resultant influences on the support of 
educational, religious, and other institu- 
tions in the community. 

■ The family performs important edu- 
cational functions. One of these func- 
tions involves the occupational choices of 
young people. How these choices are 
made is important in economic develop- 
ment, for growing numbers of untrained 
workers will act adversely on economic 
growth. In western societies, the family 
has been the most important influence 
on occupational choice, and therefore it 
has had an influence on educational ad- 
vancement of youth. In the older, under- 
developed societies, such as India, the 
structure of the society itself, the caste 
system, has determined the occupation. 

The problem of occupational choice is 
related, of course, to the nature of the 
educational institution of a particular 
society. In the American school system, 
for example, there is a tendency, espe- 
cially in the high school, to "educate" for 
college as a primary goal. Formal edu- 
cation for those who cannot or who do 
not choose to go on to college is largely 



neglected. In our highly developed tech- 
nological society, in which changes are 
taking place rapidly, research into 
the capabilities, interests, potentialities, 
hopes, aspirations, and desires of youth, 
especially rural youth, is very impor- 
tant. 11 Education in terms of individual 
needs and potentialities is still far from 
perfect. 12 Failing to help youth get the 
type of training needed for our expand- 
ing technology will retard economic 
development, and developing an effective 
system of guidance, based on research, 
will certainly have a positive influence on 
the economy. "Thousands of skills, be- 
liefs, knowledges, values, and norms 
must be taught if culture is to have con- 
tinuity." 13 

■ Research has been inadequate in re- 
gard to institutions of social control, not 
the least of which are political power 
systems, as they affect or influence eco- 
nomic development. In a democracy, 
the power to make decisions in the 
political system is supposed to rest in the 
hands of the people through their elected 
representatives. Major systems of social 
control, which seem to be moving in the 
direction of governmental support, tend 
to minimize the importance of the opin- 
ion of the individual. There seems to 
be a trend toward limiting decision- 
making to administrators and paid execu- 
tives in huge bureaucratic systems — 
farmers' organizations, business corpora- 
tions, economic cooperatives, and gov- 
ernment and political organizations. 

Little is known about the attitudes 
and desires of the rank and file of farm- 
ers toward existing and proposed farm 
programs. We know very little about 
how decisions are made and policies are 
formed in social systems of which farm- 

11 Lee A. Burchinal, op. cit., p. 27. 

12 A. R. Mangus and John R. Seeley, Mental 
Needs in Rural and Semi-Rural Areas in Ohio. 
AES, Univ. Ohio. p. 18. 1950. 

13 Robin M. Williams, op. cit. 



90 



ILLINOIS AGRICULTURAL ECONOMICS, DECEMBER, 1964 



ers are a part. It is a question of how 
effectively farmers' wishes and desires 
are considered by farm organizations and 
are used in making policy decisions, 
and how well the channels are kept open, 
whether to the farmer or to the local 
community group, in forming, support- 
ing, and changing these social institu- 
tions that serve the individual farmer. 
Instituting a research program, carried 
out by an unbiased research staff that 
would merely "poll" the opinions of 
farmers would be a beginning. To be 
most useful, such a research program 
must find out how farmers are supplied 
with information that will help them 
take an intelligent part in policy forma- 
tion, and how they are using such 
information. 

■ Social welfare institutions have 
grown in service and in cost. Many of 
them are set up to rehabilitate those who 
become recipients of public aid, the 
theory being that by placing emphasis on 
rehabilitation these agencies will work 
themselves out of a job. If this theory 
were to work out in practice it would 
have a positive effect on economic devel- 
opment, but the trend seems to be in the 
opposite direction. In two counties in 
Illinois, for example, persons making up 
one-fifth of the total population are re- 
ceiving public assistance. Research is 
needed in rural areas to determine why 
people go on relief, what percentage are 
indigent — especially those needing per- 
manent public support — and why the 
programs for rehabilitation are not suc- 
cessful. Such research should also reveal 
what influences social welfare institutions 
have on economic development. 

The studies should be directed not only 
to institutions that help those who need 
public assistance, but also to FHA and 
similar programs. Case history data are 
readily available. Supplemented by care- 
fully selected samples of the clients, such 



studies could reveal the social and eco- 
nomic forces that cause people to go on 
relief. 

Since people without adequate school- 
ing make up a disproportionate number 
of those on the relief rolls, the results of 
such research might well point to the 
need for an intensified educational pro- 
gram and a better guidance program in 
the community — one that would find 
out the potentialities and educational 
needs not only of potential school drop- 
outs, but of the unemployed, with a view 
to teaching new skills to fit them for jobs 
requiring special skills in our rapidly 
developing technological society. 

■ Research studies are needed on the 
problem of the underemployed in agricul- 
ture. It has been said that many of the 
farmers on small farms would be better 
off in some other occupation. Only well- 
designed research can prove whether this 
hypothesis is true. It could prove, for 
example, that with the proper guidance 
some of these farmers could learn new 
farm practice techniques that would en- 
able them to earn a better living than if 
they moved to a city, where job compe- 
tition is already keen for unskilled labor. 

Areas of Concern in "Developing" 
Societies 

The influences of rural institutions in 
a traditional society are different than in 
a modern or technological society. If the 
concern is for needed research in the 
traditional society, then one must take 
into account the stage of development — 
the extent that technologies have per- 
meated the developing society — and the 
research design must be adapted accord- 
ingly. 

In a society, for example, in which the 
traditional family and village system is 
still feudal and in which higher values 
are placed on religious, ceremonial, or 
traditional practices than on science, the 



INFLUENCE OF RURAL INSTITUTIONS ON DEVELOPMENT 



approach must be largely in [he applied 
rather than in the pure research field. It 
must be concerned with closely integrated 
cultural norms, especially in areas in 
which the farming peoples are still con- 
trolled by what may be called preserva- 
tive rather than the acquisitive norms. 

The nature of institutions in tradi- 
tional societies. Most traditional so- 
cieties, which still mark the agricultural 
situation in the underdeveloped or devel- 
oping areas, are those in which informal 
and institutionalized social relations dom- 
inate. These relationships, as in India, 
are highly stratified, as into the caste 
system. Hence, any efforts to bring about 
economic development, such as through 
the introduction of new or scientific 
forms or other practices, must inevitably 
run up against these stratified relation- 
ships. 

An outstanding characteristic of the 
informal yet highly institutionalized rela- 
tionship in agricultural societies of the 
developing countries is that of conformity 
to norms of conduct. These norms in 
themselves resist change to the type of 
society in which improved practices can 
take place. 

Importance of research on leader- 
group patterns. Before much can be 
done by any change agent in bringing 
about economic change, research is 
needed to determine the institutional ar- 
rangements which tend to maintain the 
status quo. Such studies should reveal 
not only the leader-follower relations 
among the informal groups in the partic- 
ular society to be studied, but also the 
systems of obligations and the internal 
power structure that has been developed 
to maintain this situation. Moreover, the 
mores and sanctions supporting those 
holding positions of power must be un- 
earthed. 

The results of this kind of a study will, 
in all probability, reveal existing situa- 



tions of unrest and dissatisfaction, upon 
which programs of change may be initi- 
ated. The analysis of the group leader- 
follower patterns, the systems of domi- 
nance and submission, and the mores and 
sanctions give change-agents the basic 
data on which to develop plans for bring- 
ing about change in the agricultural area. 
If the philosophy of the change-agent 
system is such as to use education and 
persuasion in bringing about change, the 
problem of actually initiating change is 
complicated by the necessity to change 
attitudes, values, and basic objectives of 
the institutionalized control or power ele- 
ments in the target system. This then 
calls for research in attitudes, values, and 
objectives as well as the extent to which 
those holding positions of power may be 
favorably inclined toward any change at 
all in the system. Lacking such evidence 
of amenability, it may be necessary to 
wait until some sort of reform movement 
takes place in the country which weakens 
or displaces this power element — for 
example the landlord, religious-leader, 
money-lender complex of power — so that 
education for change can take place. 

Needed research on social systems. 

It is not enough, therefore, to study the 
social-cultural situation in the target sys- 
tem; research must be carried on in re- 
gard to the nature of the change-agent 
system, such as the institutionalized sys- 
tem of adult education developed in a 
particular culture. This system, which 
ostensibly may be called a pure demo- 
cratically oriented adult education sys- 
tem, may in fact be more nearly a pure 
bureaucratic system, highly influenced by 
the political system of which it is a part. 
A study of how adult education oper- 
ates, therefore, is quite important, if not 
essential, as a basis for determining how 
effective such a system is in actually 
reaching and teaching farmers new prac- 
tices. It is conceivable that only those 



92 



ILLINOIS AGRICULTURAL ECONOMICS, DECEMBER, 1964 



(landowners) who already hold the bal- 
ance of power, or absolute power, in the 
change-agent system are the chief recip- 
ients of the "teachings" coming out of 
the system. Hence, "systemic analysis" 
of the change-agent system is of basic 
importance. 

Needed research in social processes. 

By the time that the "basic" research is 
completed or well underway the ground- 
work may have been laid for research in 
the diffusion process as it has been car- 
ried out in the United States, to deter- 
mine what forces lead a farmer to accept 
or reject an improved practice. The reli- 
ability of such a study will depend, of 
course, on the readiness of farmers for 
such a program, or the extent to which 
the cultivator is actually the decision 
maker. Also involved in whether or not 
reliable answers are given is the basic 
ideology, or, one might say, the courtesy 
patterns among the owner and cultivator 
groups. 

Importance of social experimenta- 
tion. It may very well be that a study 
of the diffusion process, or the process of 
decision-making, should be preceded by 
a program of experimentation with adult 
education methods, including the use of 
demonstrations. Involved in this ap- 
proach would be carefully planned local 
leader-teacher training and the use of 
participant observers. These observers 
would remain with the project long 
enough to secure a body of reliable obser- 
vation on all stages of the process, from 
securing willingness on the part of group- 
selected demonstrators, to the evaluation. 
The evaluation should not only be con- 
cerned with results of one demonstration, 
but also the nature of the continuous use 
or adaptation of the practice by the 
adopters. 

Integration of research, teaching, and 
extension. Implicit in the effort to de- 
velop a system of adult education attuned 



to the peculiar culture in which the sys- 
tem is to work is that there is an inte- 
grated system which ties together re- 
search, teaching, and extension or adult 
education. The nature of this system of 
integration and how it works is an im- 
portant subject for study in itself. For if 
adult education, and possibly research, is 
a state function, and teaching is an insti- 
tutional function, such as through a pri- 
vately operated college of agriculture, 
there is quite possibly a serious gap in 
the institutional structure which retards 
economic development. 

The process of involvement. Closely 
related to studies already mentioned is 
the need for study of the system of in- 
volving farmers (cultivators) in the total 
decision-making process. This can begin 
at the family institutional level, to learn 
how farm and family decisions are made 
and how they are influenced by social 
forces, both on the target system and 
change-agent system levels. 

Such research can take account, also, 
of the way in which local governmental 
systems operate to enhance or to deter 
decision-making and social action, for 
example, in the formation of mutual-aid 
or cooperative efforts of various kinds. 
This is a vast area for research in devel- 
oping countries, because the way in which 
cooperative and organization efforts are 
regarded, implemented, and controlled is 
frequently quite different than in devel- 
oped countries. In many countries, farm- 
ers' organizations include all systems set 
up to benefit farmers. Many potential 
(and actual) social systems involving 
farmers are those relating to land and 
water use. 

Studies are needed, not only to deter- 
mine the ways in which farmers (culti- 
vators) in the developing countries can 
be involved in programs for some farm 
size rationalization, but also to define the 
evolving systems in such recently devel- 



INFLUENCE OF RURAL INSTITUTIONS ON DEVELOPMENT 



93 



oped countries as Japan. This is a prob- 
lem not only of land reform, but of 
maintaining or building up adequate so- 
cial and economic units of operation. 

Needed research relating to com- 
munity development. Both institu- 
tional change and economic development 
are being affected by a movement called 
community development in the develop- 
ing countries. This concept, as it has de- 
veloped in East Asia, looks to a "gestalt" 
type of development in which economic 
improvement is supposed to go along with 
health, educational, and communicational 
improvement. With the low institutional 
levels of great masses of the population 
in the developing countries, a study of 
such a movement deserves support. It 
can be hypothesized that before signifi- 
cant economic development can take place 
the institutions of health, education, and 
communication must be improved. 

The important element in such a study 
is, again, how the people, through their 
local leaders, can become involved. And 
this, in turn, depends on an understand- 
ing of the value systems of the people 
and their attitudes toward better health 
practices, the nature and content of the 
educational program, and the spirit and 
philosophy of that program. 

Needed interdisciplinary cooperation. 

It is apparent from the above that re- 
search regarding the influence of rural 
institutions on economic development in 
the developing countries is not a one- 
man, one-discipline, or one-institution job. 
Models of social research can be devel- 
oped by rural sociologists along the lines 
suggested above, and results can be very 
useful in aiding programs both for eco- 
nomic development (the means) and so- 
cial and human welfare (the ends). Too 
often we have put the cart before the 
horse — that is, by starting farm plan- 
ning, for example, before an agricultural 
society is ready for it. The neglect of 



sociological studies related to the problem 
of making technological advances has 
frequently not only retarded the process 
of acceptance, but has also distorted and 
caused serious maladjustments in the so- 
ciety for which change should be bene- 
ficial. It is well known that invention and 
innovation require a social situation in 
which both can take place. 

The situation facing the developing 
countries is serious enough that coopera- 
tive or team effort on the part of natural 
and social scientists should be an im- 
perative. 

Concluding Comments 

The problem of identifying research 
tasks relating to the influence of rural 
institutions on economic development is 
as broad and complex as the institutional 
structure of rural society itself. In this 
paper I have attempted to define the 
problem by defining institutions, to men- 
tion some areas of needed research ex- 
pressed by other writers, and to discuss 
briefly some of the areas in which re- 
search is needed. It has been emphasized 
that economic development influences as 
well as is influenced by changes in rural 
institutions. The whole economic order, 
from a sociological point of view, is a 
network of norms and expectations — a 
web of "promises" as to the course that 
economic action will take, or is supposed 
to take. Institutional barriers can limit 
the encroachment of economic pressures. 
The kind and extent of economic ration- 
ality depends on complex relationships in 
the total social or institutional structure. 

These and other interdependent condi- 
tioning factors make imperative the fur- 
ther study of the influences of rural social 
institutions on economic development. 
The development of research programs 
in this area should therefore involve 
both economists and sociologists, and 
contributions could also be made by an- 
thropologists and social psychologists. 



94 



ILLINOIS AGRICULTURAL ECONOMICS, DECEMBER, 1964 



Land Ownership and Tenure Reforms 



FOLKE 

Department of Agricultural 

It is necessary to point out, 

from the outset, that the socio-economic 
role of landownership and of the various 
forms of tenure is always specific to a 
given society, at a given time or over a 
given period of development. Experience 
from one country is not necessarily in 
any manner applicable to another one, 
either now or within such time in the 
future as one may reasonably plan for. 

The reason is not only in the striking 
differences between the socio-economic 
and cultural conditions of different coun- 
tries. More than that, we want to empha- 
size the time factor in socio-economic 
development. It is not enough to assume 
that all countries are traveling along es- 
sentially the same path of development 
and will eventually arrive at similar re- 
sults. Such a statement will have to be 
proved before it is accepted. But even 
though such an assumption is made, it 
remains true that existing differences in 
development represent time lags which 
will take considerable time to overcome. 
When someone is planning an institu- 
tional reform to serve development ef- 
forts better in the immediate future, it is 
not necessarily of any interest to him that 
the institutions he plans for will become 
obsolete in a remote future. So will also 
the institutions being planned or reformed 
in developed countries; yet the present 
and the near future must be given the 
institutions that will be of most service in 
their time and place. 

As an opening statement we therefore 
submit that the recent experience of 
highly developed countries, where it may 
appear that the ownership and tenure 
ideals of the past are becoming obsolete, 
does not immediately apply to underde- 



DOVRING 

Economics, University of Illinois 

veloped countries. It would do so only if 
it could be demonstrated or made likely 
that these latter countries would soon 
reach a level of socio-economic develop- 
ment similar to that on which the ad- 
vanced countries are now experiencing 
these problems of institutional obsoles- 
cence, if such they may be termed. 

As a further consequence, we submit 
that any evaluation of existing institu- 
tions, and any plan for institutional re- 
form, must be oriented in the time di- 
mension. What is the present level of 
economic development? How soon may 
some other level be reached with the ex- 
pected rate of population growth and ex- 
isting conditions for economic progress? 

The theory of differential sector growth 
is highly relevant here. Experience and 
logic concur in showing that when the 
agricultural sector employs a large ma- 
jority of a population it cannot display 
any very rapid rate of economic growth. 
Even though the other sectors were ex- 
panding at high rates, considerable time 
would elapse before they were a large 
enough part of the whole system to dom- 
inate the picture and render possible a 
very rapid overall growth. Above all, in 
these early phases of development, the 
prospect of a reduction in the absolute 
numbers of people engaged in or living 
from agriculture is usually remote. The 
possibility of reducing the absolute size 
of the agricultural population, with the 
attendant possibilities (and problems) of 
adjustment, usually comes up in an ad- 
vanced phase of development and the re- 
duction can continue as the country be- 
comes more highly industrialized. 

With these general remarks in mind, 
we will discuss some of the current pros 



LAND OWNERSHIP AND TENURE REFORMS 



95 



and cons about land reform, and the re- 
search necessary to settle some of these 
controversies. 

Distributive Equity vs. Productivity 

The argument in favor of breaking up 
large operational holdings, and creating 
small ones, usually turns around a sup- 
posed dichotomy of social justice versus 
economic efficiency. Several elements in 
this line of argument must be kept apart 
and discussed separately. 

The productivity issue — "returns to 
scale." The most common argument 
in favor of maintaining (or even creat- 
ing) large operational holdings refers to 
scale advantages. Sometimes a curious 
resemblance comes to light between the 
reasoning of "agrarian industrialists" in 
the western world and those in commu- 
nist countries. When "returns to scale" 
are not blankly assumed to obtain a pri- 
ori, they are often brought out as a find- 
ing from analyses of bookkeeping results 
from individual farms. 

A critical point for research in this 
area is the discrepancy between individual 
and social accounting. Operators of large 
estates have to economize with inputs in 
order to achieve the best possible rate of 
output to input. Hired labor always has 
a price, and paying for more of it, in 
cash or kind, increases the financial risk 
of the farm. Economizing with labor re- 
duces the risk, and substitution of capital 
for labor may often raise the rate of re- 
turn to the farm, even in underdeveloped 
countries. 

If the labor which is replaced finds no 
other employment, then the substitution 
has not increased the rate of return in 
social accounting. On the contrary, it 
may have lowered it. To the extent that 
this is true, the productivity argument in 
favor of large farms is valid only in the 
private accounts of the operators of such 



farms. In social accounting, for the econ 
omy of the country, intensive use of sur- 
plus farm labor may make more sense. 

The research task here is to find out 
the real merits or demerits of peasant 
farms and large-scale operation. The 
above-indicated frame of theory may 
yield an answer in one direction or the 
other, depending upon what magnitudes 
are involved. For instance, it may be 
found that peasant farms measure up 
well in comparison with the alternative of 
establishing new, large, centrally oper- 
ated estates that would entail heavy in- 
vestment; at the same time, "plantations" 
actually in existence as going concerns 
may be found to represent the best use of 
the resources already invested in them 
(as "sunk costs"). 

As a sideline, there should also be an 
investigation of the extent to which "re- 
turns to scale" on large farms result from 
applying a very low wage scale to hired 
labor. The test here, which again might 
go one way or the other, would be in a 
comparison of the incomes (per year, not 
per hour) of wage laborers and of inde- 
pendent small farmers. 

Aggregate yield measurement. In an 

underdeveloped country, inputs in agri- 
culture usually consist almost entirely of 
land, labor, and farm-produced factors 
such as draft animals, hand tools, etc. 
Externally generated factors are of small 
importance in absolute quantity and are 
often concentrated on certain specialty 
crops (often intended for export), which 
are not necessarily in the center of atten- 
tion in debate about land reform. In 
many situations, it is therefore of interest 
simply to measure gross output per unit 
of land area, as an expression coming 
close to net resource productivity, on the 
usual assumption that local farm labor is 
surplus to such extent that its opportunity 
cost can be treated as zero. 



96 



ILLINOIS AGRICULTURAL ECONOMICS, DECEMBER, 1964 



In this type of measurement, it is nec- 
essary to distinguish aggregate yield 
(price-weighted aggregates) from the 
physical yield of individual crops. High 
acre yields of individual crops are not 
necessarily a symptom of high technical 
standards of farming. They may result 
from extensive cropping practices, where 
crops with high fertility requirements are 
kept to a minimum and much good land 
is planted to crops which, in a more in- 
tensive system, would occupy only lower 
grade land. Conversely, intensification of 
the cropping pattern may well lead to a 
lowering of the acre-yield of individual 
crops, at the same time as the aggregate 
(price-weighted) outturn of all products 
per area unit goes up. 

The result of such an analysis is sel- 
dom clearly evident of itself, except in 
areas where soil and climate are homo- 
geneous to a high degree. In most cases it 
will be necessary to investigate the varia- 
tions in soil fertility, climate, and water 
supply to insure that the areas on which 
yields are measured are comparable on 
the different farm sizes. 

Empirically, densely settled areas of 
peasant farming often do produce larger 
quantities of farm products per unit 
(unweighted or unclassified) of physical 
area than the larger farms. The research 
task here is to find out whether and to 
what extent this is so in the given case, 
and whether and to what extent the same 
finding holds when soil productivity is 
taken into account in the comparison. 

The livelihood issue. One of the 
dilemmas of land reform in very densely 
settled countries is in the large number 
of people who are potential beneficiaries. 
If they are each to receive a holding, 
these holdings will be very small. The 
argument is often heard that such hold- 
ings are uneconomic. They would be un- 
able to own, or even to use rationally, 
many of those modern means of produc- 



tion which are conducive to higher levels 
of productivity. 

The validity of such objections may be 
questioned. In the underdeveloped situ- 
ation, many of the heavier types of equip- 
ment are unavailable in any appreciable 
quantity, and cooperative use and mutual 
aid between neighbors might take care of 
other items not economical for individual 
ownership. But the question of how 
many people should be accommodated in 
agriculture remains valid and is a re- 
searchable problem of the first order 
when land reform is under debate. 

As an extreme solution it is sometimes 
advocated that a reform of the farm size 
structure should aim at making farms as 
large as they need to be for optimum 
factor productivity, and that all the sur- 
plus labor should be employed elsewhere, 
such as on public works. If the reason- 
ing in the above sections on returns to 
scale and aggregate yield measurement 
is applied to the actual level of factor 
supplies — and their potential levels are 
anticipated over the period of a plan 
perspective — then, of course, this "opti- 
mal" farm size may still be quite small. 
The problem then is: Will the accommo- 
dation of the entire agricultural popula- 
tion on individual holdings lead to a 
lower than optimum level of resource 
productivity in the aggregate — to a net 
loss for the national economy? The coun- 
terpart is, of course, that, if some of the 
present agricultural families are left 
without any holdings, they must be given 
another source of livelihood; when all or 
most of the land is in family-size hold- 
ings, there would no longer be any use 
for hired workers. 

Creating sources of livelihood for the 
landless will not be without cost to the 
community. If their number is very 
large, the task may not be at all feasible 
in an underdeveloped country. Most im- 
portant, many of the activities or arrange- 



LAND OWNERSHIP AND TENURE REFORMS 



97 



ments adopted to accommodate the land- 
less would almost certainly be such thai 
they would cause a deficit in the national 
economy. The center of the problem is 
then this: Which would be greater - 
the deficit mentioned in the preceding sen- 
tence, or the loss of productivity because 
the land reform was made to accommo- 
date nearly all the agricultural popula- 
tion? The answer may well depend on 
the size of administrative overhead 
needed to handle the two alternatives. 

Of course there should also be an in- 
vestigation of what the effect would be if 
the reform were done only halfway, 
leaving enough of the larger farms in 
existence to continue to employ the land- 
less for wages. It is possible, for instance, 
that an analysis of recent agricultural 
progress in Mexico would show that the 
remaining large farms received enough 
of an incentive, from the fear of con- 
tinued land reform, to make them try to 
justify their existence through rising pro- 
ductivity. This line of reasoning has 
been consistently applied in Spain. Ex- 
propriation and subdivision has been used 
as a way of eliminating low-productive 
estates and creating more productive 
peasant farming areas, but also as an 
admonition to remaining estate owners to 
improve their landholdings or face the 
consequences. The application in Spain 
has been piecemeal and incomplete, but 
it appears to have had some of the de- 
sired effect. 

The role of distributive equity. Dis- 
tributive equity is usually regarded as 
one of the social goals of land reform. 
Unlike the leveling of money incomes in 
an urban economy, distributive equity in 
a peasant society is seldom credited with 
giving stimuli to the economy in general. 
Peasants living in partial self-sufficiency 
are not fully integrated into a market 
mechanism and might contribute less, not 
more, to an exchange economy. 



The question is whether this way of 
contrasting the social merits of distribu- 
tive equity against alleged economic 
drawbacks is justified. How far the 
small-scale operations of peasants become 
integrated into a market economy de- 
pends on other things, such as taxation, 
rent paying, the use of credit, and eco- 
nomic policy in general. There is no 
particular reason why landless farm 
workers would be better customers for 
nonfarm products than the farmers with 
small holdings. 

A common objection against an econ- 
omy with small farms is the allegation 
that the peasants tend to consume most 
of what they produce themselves, and 
bring only insufficient supplies to the 
market. 

The tendency to market a larger or 
smaller part of the output is certainly a 
key problem to explore. In one sense it 
is logical to assume that a lesser share is 
marketed when the independent produc- 
ers constitute a larger part of all the 
consumers; in a large-farm-and-wage- 
worker economy, some part of the output 
may be exchanged on the local market 
and bought by farmhands for their cash 
wages. Such a market exchange is of du- 
bious benefit, as is also the case (known, 
i.a. from India) of farmers providing 
themselves with disguised credit by sell- 
ing for cash in one season the food they 
will buy back in the next for more cash. 
That farmers retain more food for their 
own consumption may also lead to better 
nutrition and health among themselves, 
which is a contribution to national wel- 
fare and productivity. 

The core of the problem is not really 
in the proportion of farm output that is 
marketed, but in the absolute quantity. 
An inquiry into bookkeeping results in 
Hungary in the 1930's, revealed precisely 
this: The larger farms marketed a higher 
percentage of their output than the 



98 



ILLINOIS AGRICULTURAL ECONOMICS, DECEMBER, 1964 



smaller ones, but the latter produced so 
much more output (aggregate, price- 
weighted) per unit of area that their 
lower percentage of market deliveries 
amounted to larger absolute quantities, 
per acre in farms, than were marketed by 
the larger farms. The criterion of land 
productivity is, of course, subject to the 
tests suggested under the above section 
dealing with aggregate yield measure- 
ment. Another approach to this general 
problem would be to compare the trend 
in market deliveries from areas of differ- 
ent farm-size systems. The extent to 
which each area supports a growing pop- 
ulation, and the welfare conditions of that 
population, are, of course, other tests, in 
addition to the level and trend in market 
deliveries. 

Tenure Conditions and Their Effects 

Changes in tenure conditions, in many 
cases, have a larger impact than subdivi- 
sion of large holdings. In most underde- 
veloped countries of the present and the 
recent past, most of the large estates are 
or have been cultivated in small tenant 
holdings, to a great extent by sharecrop- 
pers. Current statistics are sometimes 
deceptive on this point. For instance, the 
farm censuses in Brazil (1940, 1950) and 
Iraq (1953) represent as large, owner- 
operated holdings what are, in fact, com- 
plexes of cropper holdings. 

Also, in the recent past, tenure reforms 
have had more impact than farm-size re- 
forms. Protection of tenant farmers in 
Italy and Spain has touched larger seg- 
ments of the farm industry than did the 
establishment of new small farms. The 
land reform in Egypt redistributed one- 
tenth of the land but protected the posi- 
tion of tenant farmers occupying one- 
third of the farmland of the country. In 
Japan, the postwar land reform was prin- 
cipally a shift from tenant farming to 
owner farming, with very little change in 



the size structure of farms. Also in 
India, recent and current reform meas- 
ures have touched upon conditions of 
tenure more than they have affected the 
size of operational units. 

Research tasks in this area include the 
economic effects of the tenure forms as 
they exist and the possible effects of a 
specified change. The formulation of a 
problem in this area is complicated by the 
degree to which the solution reflects 
socio-psychological instincts and attitudes 
and the possibility of changes in these 
patterns. 

The doctrine of the superiority of own- 
ership by the cultivators was handed 
down to us from the socio-economic re- 
form movements of the 18th century. In 
many instances, it has come to be identi- 
fied as the ultimate goal of a land re- 
form, whether by changing farm size or 
tenure or both. As such, it has brought 
the land reform idea under fire by two 
rather distinct lines of argument. 

One argument points to recent experi- 
ence in the highly industrialized countries 
when agriculture has become increasingly 
capital-intensive. The ideal of ownership 
may no longer be rational. This argu- 
ment can be disposed of rather quickly 
in most underdeveloped countries by ref- 
erence to the time dimension. If the day 
is remote when the country's agriculture 
may become highly capital-intensive, then 
the argument is not valid for practical 
planning. 

More important are the objections aris- 
ing out of conditions in the underdevel- 
oped countries themselves. In the ex- 
treme case it is pointed out that many 
people, for example, in Africa, are not 
property-minded enough for the typical 
ownership incentive to work satisfactor- 
ily. The 18th-century economists wrote 
on the basis of European experience, in a 
society where the individual family rather 
than the tribe or village community was 



LAND OWNERSHIP AND TENURE REFORMS 



99 



the identifiable nucleus of economic ac- 
tivity and economic obligations. In a dif- 
ferent socio-psychological setting, insti- 
tutional arrangements might have to be 
different. 

The risk is in jumping from one gen- 
eralization to another one. The fact that 
traditional peasant societies in Africa or 
Asia are different from those of 18th or 
early 19th century Europe does not mean 
that they are different altogether or that 
they will prove immune to the evolution- 
ary tendencies which force economic re- 
sponsibility upon individuals. 

Apart from study of the peculiar struc- 
ture of land law and the social function 
or property as they exist, it is equally 
essential to note any ongoing changes and 
to interpret the possibilities they open 
up for an institutional setting which may 
unfetter individual response to incentive 
without clashing too destructively with 
the prevalent instincts and habits of the 
people concerned. The paysannat in the 
Congo is (or at least was) an interesting 
experiment, and its parallels on the spon- 
taneous level (such as individualizing of 
cocoa groves in West Africa) ought to 
be studied attentively before any judg- 
ment is passed either for or against own- 
ership by cultivators as a social form for 
agricultural development. 

In large parts of the underdeveloped 
world, individual ownership is at any 
rate a conscious goal capable of attracting 
massive popular support. It is interesting 
to note how the tradition-inspired insti- 
tution of the ejido in Mexico has gener- 
ated little practical collectivism. Legally 
the land is held in common by the village, 
but in most cases cultivation is individual, 
usually under stable tenure of the same 
land parcels. 

In some cases, it is also suggested that 
owner- farmers in underdeveloped coun- 
tries are actually less productive than 
tenant farmers or even sharecroppers. 



For instance, it was stated recently that 
owner-operating peasant farmers in the 
Philippines had lower crop yields than 
share croppers. To be valid, this argu- 
ment would have to show that the two 
categories had essentially the same quali- 
ties of land and applied essentially the 
same level of intensity in their cropping 
patterns. Experience from Europe and 
elsewhere indicates that landlord owner- 
ship became established and maintained 
principally in the most fertile areas, while 
peasant ownership could more easily 
maintain itself on marginal land. As re- 
gards sharecroppers, it is of course also 
possible that the cropping plans laid down 
by landlords imply a less intensive pat- 
tern of land use, and thus higher yields 
of individual crops but not necessarily 
higher aggregate yields (in the same way 
as discussed above for farm-size differ- 
ences). It is the productivity of compa- 
rable resources that should be established 
before judgment can be passed. 

The wider question of incentives and 
how to overcome the limiting effects of a 
"target demand" is one that transcends 
the discussion of tenure forms. Some 
aspects of it will be discussed later in 
connection with agriculture's contribution 
to economic growth. 

The economic pros and cons of alter- 
native terms of renting must be judged in 
similar terms when the country is short 
of capital and needs vigorous expansion 
in production at minimum investment 
cost. The production results under al- 
ternative tenure forms must be assessed 
on the basis of social rather than private 
accounting. 

The drawback of sharecropping may 
thus not be confined solely to the lack of 
incentive for the cultivators to raise unit 
yields. As long as it is done exclusively 
by means of investing more manual labor, 
it can have a certain attraction also for 
cultivators who get only their share of 



100 



ILLINOIS AGRICULTURAL ECONOMICS, DECEMBER, 1964 



the added output. The element of risk- 
minimizing seems at any rate to be the 
reason why not only landlords but also 
peasants, in situations of capital shortage, 
often prefer sharecropping to other rental 
arrangements. 

There is a possibility of crop diversifi- 
cation as a means of raising aggregate 
output. Most inquiries show that share- 
cropping in underdeveloped countries 
tends to favor monoculture, with its ob- 
viously depressing effect on aggregate 
output and on welfare in a crowded 
country. It is characteristic that the 
classical cash rentals in England were 
associated with an obligation for tenants 
to apply certain diversified patterns of 
cropping. Similar arrangements were ap- 
plied in recent land reform measures for 
intensive farming (for example, in Italy 
and Spain) and also, for instance, in the 
"paysannats" in the Congo. It seems un- 
likely that such schemes for intensive 
farming could be carried out under share- 
cropping contracts in the conditions of 
underdeveloped countries. Any evidence 
on this point should be analyzed to clar- 
ify the issue. The answer is not neces- 
sarily the same, or even analogous, in all 
countries. 

Effects of Land Reform 
on Economic Growth 

The problem formulations set forth 
above centered around the productiveness 
of alternative tenure arrangements. Tac- 
itly, it was assumed that the highest rate 
of return — in underdeveloped countries, 
in most cases, the highest rate of physical 
output — would be in the best interest of 
the country. In the following we will dis- 
cuss some attendant problems concerning 
the effect on economic growth which may 
be expected from the change in volume 
of output that should come in the wake 
of a land reform. 

It has been charged many times that 



the increased distributive equity achieved 
by a land reform would blunt economic 
growth by allocating more of the output 
to direct consumption on farms and 
making less of it available as a basis for 
capital formation in other sectors of the 
economy. As a case in point we may 
refer to Turkey. The country had a rad- 
ical land reform several decades ago. 
The peasants became full owners and 
from then on they not only paid no rent 
to landlords, but paid no taxes either. 
Their contribution to economic growth 
was limited to the quantities of farm 
products they had to sell to cover their 
modest cash needs. In a static economy, 
with a peasantry rather disinclined to 
achieve more of the good things an in- 
dustrial economy can produce, the land 
reform led principally to an accelerated 
population increase, with little or no 
movement toward a diversified economy 
or rising levels of living. 

In contrast, it is easy to point to con- 
tributions to economic growth made else- 
where by an agricultural sector with less- 
idealized institutions. Land rents and 
land taxes built up much of the industrial 
capital in Europe and Japan, and the 
U.S.S.R. financed its industrial buildup 
from a system of disguised land rent — 
the forced deliveries at fixed low prices. 
North America and Oceania needed none 
of this, but they were dynamic enough, 
on an unusually generous resource basis, 
to produce savings out of their agricul- 
ture merely through the price mechanism. 

The extreme case does not, however, 
correspond to the conditions we are dis- 
cussing here. The problem area is land 
reform in economic development, not 
outside of it. The assumption is that 
several types of dynamic change promot- 
ing economic growth are under way or 
planned. In such a situation, the contri- 
bution of agriculture could be provided 
in one of several alternative ways. 



LAND OWNERSHIP AND TENURE REFORMS 



101 



The frequent charge of increased con- 
sumption on farms is only in part an 
objection. In part it is one of the objec- 
tives of economic progress to improve 
the nutrition of the entire population, in- 
cluding the agricultural population. The 
argument could be valid only to the ex- 
tent that it meant less sales available to 
supply the nonagricultural population or 
the export markets. Such cases may have 
existed, but it is questionable whether 
they were due to the land reform, as such, 
or would have occurred anyway as a 
consequence of population increase. 

The capitalistic landlord no doubt ful- 
filled a useful function in the past of 
many countries when he collected rent or 
surplus output and used the proceeds for 
investment toward higher productivity, 
maybe in agriculture but more often, and 
more significantly, in other industries. 
The trouble with many landlords in un- 
derdeveloped countries is not that they 
charge rents, but rather that they use too 
much of the rents for luxury living, land 
buying, and hoarding, and too little for 
purposes that will promote economic 
growth. Even as regards the cotton 
plantations in the antebellum South, the 
charge has been made that they operated 
an essentially static system that was at 
best capable of expanding horizontally 
but did not generate progressive capital 
formation. The country benefited, of 
course, from the profits taken by com- 
mercial middlemen, but they did not nec- 
essarily reside in the cotton areas. 

Eliminating parasitic landlords there- 
fore does not shatter a productive insti- 
tutional arrangement; it can be a definite 
improvement if combined with rising 
productivity and some suitable arrange- 
ment for siphoning off some part of agri- 
culture's value product to capital forma- 
tion. An interesting side effect can be 
noted in countries where the landlord 
class has been dispossessed (entirely or 



in part) and compensated in cash. When 

rich people can no longer invest in land 
for effortless income, they have to make 
their money work elsewhere, and the pro- 
pensity to invest in other industries 
should be enhanced. Mexico is probably 
a good case in point, possibly Egypt too 
(at least for a short period), and effects 
of this kind can also be seen in several 
other countries. More attention should 
be given to this aspect of mobilizing the 
potential energy of the wealthy classes. 

The same procedure would naturally 
lead to sustained market sales of agricul- 
tural produce. When the beneficiaries of 
the land reform have to make periodic 
payments as installments on the value of 
their land, this guarantees that they will 
not roll back into low-productive self- 
sufficiency. Even where the peasantry 
was initially characterized by a low-level 
"target demand," the installment pay- 
ments on the land would become part of 
the target and fulfill the same function 
as was previously fulfilled by rent pay- 
ments. When the period of installment 
payments is over, these peasants should 
have become sufficiently money minded 
to continue effective market supply. 

Apart from this, and beyond the time 
when all installments were paid in full, 
increased market deliveries could be se- 
cured either by taxation or price policy 
or both. How these devices have func- 
tioned in the past deserves to be further 
explored as an adjunct to research on 
land reform itself. Especially in situa- 
tions of "target demand," a low price 
might lead to larger sales rather than the 
other way around. The role of "target 
demand" is complex, however, and must 
be explored in the case at hand before 
any policy is based on the assumed char- 
acter of the demand function. 

The other question of how a whole 
population reacts to a far-reaching social 
change is one that partly escapes conven- 



102 



ILLINOIS AGRICULTURAL ECONOMICS, DECEMBER, 1964 



tional analysis. The amount of energy 
that is released in a people when age-old 
class barriers are broken down cannot be 
computed by any known device. What 
we should be able to anticipate is whether 
this psychological reaction to an institu- 
tional reform will be strong or negligible, 
immediate or delayed. Study of the his- 
tory of other peoples is not the main 
answer, since much depends on the spe- 
cific experience of a given people, its 
frustrations in the recent past and its 
expectations for the future. Some land 
reforms have fallen flat because of lack 
of psychological preparation; others have 
had enormous impact on the life of a 
people — sometimes more as a general 
catalyst than through any specific and 
traceable economic effect. 

No economist who contemplates insti- 
tutional reform can therefore neglect the 
state of mind of the people concerned, or 
how it may be modified by propaganda 
or persuasive publicity. Conventional 
economic analysis usually takes the insti- 
tutions for granted and then also over- 
looks their basis in public opinion and the 
factors that shape it. Even if the econo- 
mist does not intend to advise on the 



propaganda process, let alone engage in 
it himself, he cannot afford to neglect the 
realities of this process or the impact it 
must have on the viability of alternative 
solutions to the problem of reforming 
economic institutions. 

Perhaps we should add a word about 
the state of mind of the ruling classes. 
In several underdeveloped countries, a 
traditional, rather narrow-minded class 
of wealthy landlords stands in the way 
of economic progress. These people can 
be forced to make reforms by the threat 
of revolution, or the revolution may come 
and sweep them aside. A much more 
creative approach would be to make them 
see the economic advantages to the coun- 
try (including themselves) that could 
come from a more productive land sys- 
tem. "Reform from above" was a posi- 
tive European experience in the age of 
enlightenment. To spread this kind of 
insight in the leading classes of a back- 
ward country is definitely one form of 
propaganda in which economists should 
engage. For this to have effect, the issues 
must be clearly thought out and analyzed 
and their application to the country in 
question should be made convincing. 



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